Homeowner Associations Increase Short Sale Aggravations!

Sunday, January 12th, 2014 at 2:22 pm  
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p_040When working with a Seller on purchasing a short sale it is very important to know the terms and conditions that the new buyer must uphold with the Homeowners Associations.  Recently, we started working on a short sale wherein the Seller owed the Homeowner Association a fee of $457.00 per month and another Homeowner Association issue wherein they would only allow the Buyer to be an owner occupant.   The Homeowner Association claims that the percentage of rentals have been filled and since that quota was met, this leaves only owner occupants eligible to purchase the property.    Now your pool of buyers has been decreased greatly leaving only homeowners to buy the property.

The first thing you need to do when obtaining a short sale or any type of deal from a Seller, that you are interested in purchasing the property to fix and flip or just rent, is to obtain the Homeowner Associations Bylaws.  There are Bylaws and Declarations that the Homeowners Associations are to provide to a new buyer.  Here are some of the things you must look for to prevent any show-stoppers:

1.  Application Fee for the New Buyer

2.  The New Buyer must be approved before the Board and the time-frame for this approval

3.  The percentage of owner occupant homes versus rentals allowed

4.  The colors in which the exterior of the house needs to be painted

5.  The size of tree(s) that needs to be planted

6.  The type of fence you can have on the property, if any

7.  The New Buyer cannot purchase the property in a company name, ie. LLC, Inc. or “C” Corporation and more!

Where do you find out this information?  First you need to ask the Seller what is the name and contact information for the Homeowners Association(s).  Often, I find that the sellers no longer have this information.  Please note that there could be one or two associations controlling the property.   The names of the Homeowners Associations are shown on the title work and you can track their telephone number from title work and/or just google their information.

Once you know the name of the Association,  you will need to contact them and ask for a copy of the Bylaws and Declarations.  There is sometimes a fee of up to $50.00 for these documents.  At the same time, you need to ask the Seller to obtain information as to what amount is owed on the Homeowner Association dues.   Fighting with the Associations to take less than what is owed on their dues can be very time consuming.   You also have to remember that the Board Members of the Homeowner Associations are individuals who live in that subdivision.

Therefore, sometimes your request for a reduction of the Homeowner Associations dues is denied because these people have made this decision based on a personal vendetta not a business decision.  I had one Homeowners Association that hated my Seller and refused to reduce his $23,000 dues so I had to have the new buyer pay these dues over and above the purchase price in order to get this deal sold.  Yes, the short sale lender did approve this type of deal.

In order to sell a house, you have to think outside of the box and never take “NO” as your final answer.  I teach my students that there is always a way to make it work and I show them how to do it.  Even though the Homeowners Associations know that they are only entitled to 1 full year of dues pursuant to Florida Law should the house go to foreclosure, they didn’t want to settle because they really disliked the previous Seller.  I do believe that there were no intelligent life forms there!  Making that kind of decision and not settling with a perspective buyer is only now going to increase the “dues” that are currently due and also what is owed for future Homeowner Association Dues based on their new Reserve Study.

I have two properties at this time that the Homeowners Associations are controlling where only an owner occupant can purchase the property, as their quota for investment properties has been filled.  As an Investor, where does that leave you?  Depending on the terms and conditions, it may leave you totally out of the deal.   That is why I say that being a Realtor and an Investor gives you the best of both worlds.  So … unless the Investor is going to purchase the property as a second home and live in it, he or she cannot purchase the property.  Also … if the Investor purchases the property, he or she can only resell the property to an owner occupant.

Always fully analyze your property and your exit strategies before you decide to purchase the property, because sometimes, it is just not worth your time and effort!

I look forward to providing you with future tips!  Stay tuned or join me at my next boot camp in February!

 

Happy Negotiating!

Kimberlee Frank

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WHO’S FINANCIALS DO I USE FOR DIVORCE COUPLES ON SHORT SALES?

Tuesday, December 10th, 2013 at 8:22 pm  
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kimbigideasMany of my students repeatedly ask me, “Do I need both the Wife and the ex-Husband’s financial documents when negotiating a short sale?”  I let them know that there are several variables that I need in order to give them an answer.  In order to have a clear understanding of whose financials I need to collect, I need the following information:  Property Appraiser sheet (who’s name is listed as owner?), a copy of the last recorded Deed (who’s name is on there?), a copy of the Property Settlement and Judgment of Divorce (who was awarded the property and does it contain verbiage stating that a certified copy of the Judgment of Divorce and/or Property Settlement can be recorded in lieu of a Quit Claim Deed).

FOR EXAMPLE:  Husband and Wife bought the house together with a Mortgage and Note from Wells Fargo.  They then get a divorce and the Wife is awarded the house with no interest from the ex-Husband.

When Sellers get a divorce, typically one party will say they want the house and that person will be solely responsible for the debt on the house.  A good attorney will ensure that there is specific verbiage in the Judgment of Divorce and/or Property Settlement which states that the Wife is going to be responsible for the debt on the home and that the ex-Husband will Quit Claim his interest by Deed over to the Wife so that he is no longer on the property.  In addition, a good attorney will add verbiage in the Judgment of Divorce and/or Property Settlement which states that should the Husband not sign a Quit Claim Deed to transfer the property over to the Wife, then a certified copy of this Document (Judgment of Divorce and/or Property Settlement) may be filed with the Recorder’s Department in lieu of (instead of) a Quit Claim Deed to transfer the property.

Unfortunately I have found that many attorneys do not completely follow up with the Quit Claim Deed nor do they put the correct verbiage in the Judgment of Divorce and/or Property Settlement in order for the transfer to be complete.  This is mandatory for proper flow in the chain of title. So now what?  Who’s financials do I collect?  It will always be the Wife and not the ex-Husband.

Let me back up and tell you facts when it comes to a Mortgage and Note that both the Husband and Wife have taken out on their property.  The Mortgage is a lien on the property and the Note is a promissory note or promise to pay.  Just because the one party agrees to take over the responsibility of the other person’s debt in a divorce action, it does not release them from the liability of the debt unless the Wife who was awarded the property in the divorce obtained new financing to totally remove the Husband.  So … what do you do?

After looking at the Property Settlement and/or Judgment of Divorce, if a certified copy of the Judgment of Divorce has the specific verbiage of transfer, I would not need a Quit Claim Deed.  I would send a copy of the documents to the title company to confirm that they will insure the chain of title with this document being recording versus requesting a Quit Claim Deed.   If the ex-Husband will agree to sign a Quit Claim Deed to complete the transaction, I would request that the title company prepare this so that I can be sure that the ex-Husband is not required to sign any future documents needed in order to complete the short sale and sell the home.  As a Realtor, I would have the Wife sign the listing agreement, purchase agreement, and provide all of her financial documents.  I would request that she acknowledge in her hardship letter that she was awarded the house in the divorce and is unable to keep up with the payments.

I would also provide to the Short Sale Lender a copy of the Property Settlement and/or Judgment of Divorce showing that there was a transfer so that they don’t keep asking for the ex-Husband’s financials.   My biggest concern is to make sure that I obtain a full satisfaction for the lien as the ex-Husband’s credit is still affected by this short sale.  Although he was removed from ownership, which removes him from the short sale process, he is not removed from liability of the debt.  I would also make sure that you tell the Wife that she will be responsible to claim the entire loss on her taxes and not her ex-Husband.

Explain that this is not under your control because you are not a CPA; however, when the Short Sale Lender provides a 1099 on the deficiency, most of the time it will have the social security of the ex-Husband because, in most cases, the Husband is always named first on documents.  The Wife will need to consult her CPA on this, as to how she claims the loss on her taxes.

Make sure you immediately pull title on this property when negotiating, as you may also find liens that the ex-Husband has attached to the property and you will have to ask the title company if these liens will need to be negotiated or can they be removed just by filing a certified copy of the Judgment of Divorce and/or Property Settlement or Quit Claim Deed.

Again to summarize we only need the Wife’s financial documents to do a short sale.  Hopefully she had a good attorney and there was a Quit Claim Deed filed to make your life easier when it comes to processing the short sale.

 

Happy Negotiating!

Kimberlee Frank

www.SellFastRealty.com

www.ForeclosuresGonewild.com

www.RealEstateJunkie.com

www.ShortSaleNegotiating.com

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What Makes a Short Sale?

Sunday, November 10th, 2013 at 10:25 pm  
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short saleMany Realtors and Investors really don’t know the secrets to a successful short sale. They think just because they make an offer close to market value that their short sale should go thru! Obviously, that is not correct. The secret to a successful short sale consists of several things including 1) listing price and 2) broker price opinion/appraisal on the property.

Let’s start with the listing price. How do real estate agents get paid? By commission right? Are they not taught that they need to list the house as high as possible to get the best price for the seller and the highest commission for themselves? So … when a Realtor is not trained how to do a short sale, what price do you think they list the house at? They list it for as high as possible. Unknowingly, they are doing a disservice to the sellers, buyers and themselves; as it is the Short Sale Lender that tells the agents, sellers and buyers how much they are willing to sell the property for. So, when the Realtor lists the property high, it encourages the BPO agent, who is also a Realtor, to try and reach for the list price. Remember, they use to be Realtors receiving commission and they too would list the property as high as possible. The only designation that I hold as a Real Estate Broker is SFR which stands for Short Sale Foreclosure Resource. I took this class just to see what the Realtors are being taught on short sales. I was impressed that they also recommend that the property be listed LOW not high so that the BPO Agent will provide the Short Sale Lender with their own value instead of reaching for list price. Just like an appraiser, they are also encouraged to reach for the list price since 99% of the time appraisals do not come in higher than either list price and/or the purchase price which a buyer is willing to pay.

Short Sale – What is a BPO or an Appraisal?

What is a BPO or an Appraisal? Both are just opinions of what the property is worth. Even Short Sale Lenders don’t agree with the value that an unrelated third party person such as a BPO Agent or Appraiser provides to them. When they don’t agree with this amount, they send their file up to a department called a Reconciliation Department who in turn will literally look at Zillow (which you and I know is incorrect) and other websites to determine the value the property should be versus using what was provided to the Short Sale Lender by the BPO Agent or the Appraiser. The Short Sale Lenders also use an automated system to re-evaluate the property so … when working on obtaining the value from the Short Sale Lenders, your negotiator must always ask “Is this a reconciliation value?” Knowing the answer to the question will allow you to dispute value.

A value on the property obtained from the lender normally lasts 90 days. During this time, your negotiator has the right to dispute the value providing comparables, repair bids, crime reports in the area, sex offender reports and anything else that would help dispute the value which they have. If you win the argument that their value is incorrect, then they will order another value on the property. Should this property be an FHA property, then the lender’s value lasts for 4 to 6 months and this value is harder to argue unless your buyer obtains an appraisal for a lower price.

I do want to say if a buyer provides the Short Sale Lender with an appraisal done on the behalf of the buyer for funding purposes, 99% of the time, the Short Sale Lender will accept that appraisal as value and will reduce their amount. However, I have also seen when I have provided an appraisal to the Short Sale Lender to use as argument, they will turn around and sell the loan and we had to start all over again on the short sale with a new Lender.

Now let’s talk about the major mistakes that happen when NO ONE meets the BPO Agent and/or Appraiser for the Short Sale Lender. If the Short Sale Lender has changed the locks, that means that BPO Agents and/or Appraisers have their own key or code to get in without anyone being present. In addition, if the listing agent put a electronic lockbox on the property, then the BPO Agent and/or Appraiser can get in without telling you. I teach you in my home study course that there are 13 crucial steps to a successful BPO/Appraisal. Below are the 5 of the steps to a successful BPO/Appraisal:

  1. When the BPO Agent contacts you by telephone to schedule appointment to do the BPO, you need to start building rapport immediately. Read the Script of Initial BPO or Appraisal. Ask her “if she is aware that the property is in foreclosure?”
  2. Ask her “when is the best time to meet at the property?”
  3. Tell her “We are working with the Seller and the Bank to liquidate the property and the Bank is looking for a “Quick Sale or AS IS” value.
  4. Schedule a time convenient for you and her since you NEED to be at that appointment; this is not an option for you.
  5. There is a list of documents that we provide in our BPO Package when we meet with the BPO Agent and/or Appraiser.
    1. A File Folder that is marked with “FORECLOSURE”
    2. The File Folder should that is marked with “We are working with the Seller and

The bank to liquidate the property.”

  1. The Purchase Agreement which you submitted to Loss Mitigation.
  2. Provide a copy of the Hardship letter.
  3. Newspaper Articles of the market decline
  4. Low Comparables only that have sold in the last 3 months and 3 low Active Comps
  5. Contractor Bid or Repair Cost, if any
  6. List of sex offenders
  7. Crime Report of the area

 

However, I do want to caution you that not all BPO Agents or Appraisers will take your folder as they believe it is against their guidelines. I was told by a BPO Agent that she is suppose to spend at least 20 minutes in the home and I am hear to tell you that they spend less than 10 minutes…more like 5 minutes! BPO Agents are paid $50-$75 for a BPO plus a bonus if they return it within 24 hours. Appraisers will receive $125-$300 for their report with no bonus for fast turn around.

Based on this article, I hope you all understand that you MUST meet the BPO Agent/Appraiser at the property for their value. Failure to do so will leave you 85% of the time with a higher value due to the fact that the repairs needed for the property were not taken into consideration. Also, repairs such as carpet and paint are considered cosmetic. In addition, outdated fixtures, bathrooms and kitchens are not considered as long as they are functional.

One last thing, even the best negotiator can’t argue value on a home unless they have aminution such as low comparables, repair bids, appraisals, and other things I have mentioned in this article. So meet your BPO Agent and/or Appraiser at the property and provide them with the information they need and if they fail to take it, be sure you physically point out all the damage in the home, as the agent walks through, so that they take pictures to provide it back to the Short Sale Lender of the true value of the home!

 

Happy Negotiating!

Kimberlee Frank

www.SellFastRealty.com

www.ForeclosuresGonewild.com

www.RealEstateJunkie.com

www.ShortSaleNegotiating.com

Like me on www.facebook.com/foreclosuresgonewild

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