Does Short Sale Mess Up Your Credit (FICO Score) and How Much Will It Drop?

Does a Short Sale Mess Up Your Credit Score (FICO)?

Yes.

But much less than foreclosure.

How much a short sale will mess up your credit will depend on how many payments you missed before we negotiate and close a short sale for you.

If you contact us for a short sale before missing any payments, that would be the best. We have even closed a short sale without any missed payments. Some banks however will want to see at least 1 missed payment to believe that you actually have a "hardship".

Approximately how many points will your credit score drop?

Because there are so many factors affecting your credit score it's hard to predict but here is a rough estimate:

Short Sale: 80-100 points negative FICO score impact

Foreclosure or "Deed in Lieu": 250-280 negative FICO score impact

Short Sale Specialist's Daily Negotiation Update

Here is our short sale specialist's update on all the current short sale negotiations in our company from the last 3 days.

8450 Sunrise Woods Way, Sacramento - Negotiating With Bank

I just spoke with the short sale dept. and was informed that this has been re-assigned to another negotiator because the previous negotiator is no longer there. I was told we could check back at the end of the week for additional status

7768 Stabler Ct, Sacramento - Negotiating With Bank

I spoke with the negotiator Oxford and he confirmed the foreclosure date has been postponed for 45 days.

3617 2nd Ave, Sacramento - Negotiating With Bank

I spoke with seller and he confirmed all three units will be available for interior inspection tomorrow at 1:30. I called the appraiser and he said he will be there tomorrow to do a full appraisal for Indymac.

5500 Big Creek Way - Negotiating with Bank

I sent another email to bank for status and left her a v/m

1114 Kay Cir, Turlock - Negotiating With Bank

Approvals received from both lenders, closing May 16th!

1110 Kay Cir, Turlock - Negotiating with Bank

Sending additional documentation to the lender for them to review the offer

1501 Secret Ravine Pkwy 1927, Roseville - Negotiating

Per the SS dept at Everhome Mtg. this has been assigned to a negotiator. He is requesting bank statements and 2 years tax returns. I emailed Buyer's agent with status and called seller to get a copy of his bank statements and tax returns

3608 Silverwood Rd, West Sacramento - NEED NEW OFFER!

Buyer agent called me today and said the clients changed their mind and withdrew the offer.

3800 Bigler Way, Sacramento - Negotiating

I spoke with the SS dept. at Countrywide and they confirmed the offer was received but it has not yet been assigned to a negotiator. he said to call back on April 29th for more information.

311 James Ave, Red Bluff - Negotiating

I just spoke to the bank regarding 311 James Avenue and they said they are in the process of ordering an appraisal. They told me to call back on Friday and they might have more information for me on the status of the short sale.

2451 27th Ave, Sacramento - NEED AN OFFER!

I emailed Jennifer for status of foreclosure date. I also spoke with her but she was driving and said she would reply to my email tomorrow with the foreclosure date if there is one but she said she didn't think there was a sale date set at this time.

2387 Snowberry Cir, West Sacramento - Negotiating

I called the SS department because they never called or emailed me back with status. I spoke with someone and she said she would escalate this to her manager and that I should call back on Wednesday for an update.

Loan Modification Example and Why It Failed

We recently helped our client Alex with a loan modification. Here is the situation, numbers and why it was declined by Countrywide, the 1st lender.

Alex built a house a few years ago in West Sacramento and invested about $50,000 of his own money. The rest was financed with an Adjustable Rate Mortgage (ARM).

Adjustable Rate Mortgages were popular a few years ago but not so much today. They call these loans a "ticking time bomb" because the payments are low but only for the introductory period of 1 to 5 years. Then the rate adjusts to whatever the market rate is (up!).

It's not uncommon to see payments jump by several hundred dollars of more. That's what happen to Alex. His introductory fixed payments where around $1500 per month and then jumped to over $2500 per month.

Alex's business also took a hit and he is making less money than when he first built the home. Alex can't afford the payment anymore so we helped him call his bank for a loan modification. As part of the loan modification the bank asks for a list of current income and expenses.

Alex is married and has 4 kids. Here is his monthly financial picture:

Income:
+ $3,800 income from his business

Expenses:
- $425 business insurance
- $800 business expenses
- $200 auto gasoline
- $58 auto insurance
- $150 life insurance
- $120 electric bill
- $140 cell phones
- $46 home phone
- $72 sewer/water/trash
- $350 credit card payments
- $ food and other expenses??
Total: $2,361

Net left over to pay mortgage: $1,439

As you can see Alex can barely afford the original fixed mortgage payments, and the numbers above don't even including his food and miscellaneous expenses.

What the bank said:

After submitting the financial statement and proof of income the bank took several weeks to respond with an answer.

Waiting a long time is typical as many people are trying to adjust their loans or short sale their homes during this time of economic hardship. The loan modification / loss mitigation departments of most banks are quite busy. Patience is necessary along with frequent follow up.

Bank's answer:

Sorry but you don't have enough money left over at the end of the month for us to even consider a loan modification.

Well, based on the numbers above that makes sense. Not a big surprise. At least Alex feels good that he tried. If you do your own loan modification it doesn't cost anything to try.

Next step:

Short sale the house to avoid a foreclosure and preserve credit.

3 Reasons to Help Yourself To a Free Loan Modification (Avoid Paying Thousands To a Loan Modification Company)

(Photo by The Truth About)

No, we won't ask you to pay for loan modification help...

We'll do something even better!

We will help you do your own own loan modification for FREE: by showing you how to talk with your mortgage lender yourself and how to take advantage of the latest loan modification programs and new foreclosure prevention laws.

By doing the loan modification yourself instead of hiring a loan modification company you benefit in the following ways:

1. It's FREE - Save a Lot Of Money!
   
   We have hear many horror stories of loan modification companies and "stop foreclosure" types charging HUGE upfront fees to fill out some documents for you and make some phone calls. If it doesn't work, they make it very hard to get any kind of a refund, if a refund is offered at all.
   
   The worst is when you've delayed doing anything about your high payments or you stopped making payments without any kind of a plan.
   
   Be careful!
   
   If you put yourself in a position of desperation you may fall victim to a smooth sounding "stop foreclosure" offer from one of these less scrupulous loan modification companies.
   
   We have seen them charge anywhere from $500 to $5,000 or even $10,000 for a modification or to "stop foreclosure"! The closer you are to the trustee sale (foreclosure auction) the higher the price.
   
   In fact, we know of one person who has spent over $15,000 on 3 different loan modification companies! He was only a couple of weeks away from the trustee sale and all the companies promised to stop his foreclosure.
   
   None of these companies performed, just gave him all kinds of excuses!
   
   One company even offered to buy his house at the foreclosure auction and resell it to him, but failed on that promise. This person not only lost his house to foreclosure but is still trying to get some kind of a refund. The outlook is grim.
   
   
2. Stay Private
   
   Having a 3rd party negotiate with the bank on your behalf seems like an easier way to go but there is a catch. You will have to really trust the loan modification company you choose.
   
   There are many sensitive financial documents that will need to be submitted to the bank for a loan modification, as part of a "hardship package". These documents include your financial statement, loan and bank account info, your social security number, etc.
   
   Be careful who you trust with this information!
   
   
3. Stay in Control
   
   Once you have authorized a loan modification company to talk to your bank on your behalf you have given up a lot of control. They can call the bank at any time and say things on your behalf that you may or may not have authorized.
   
   Having a 3rd party involved also increases the chance of mis-communication and for information to "fall through the cracks".
   
   If you have paid any money upfront, the loan modification company does not have as much incentive to perform and may cut corners if the going gets tough.
   

With just a little bit of confidence, patience and hand-holding, you can do your own loan modification and save money, stay private and stay in control. We'll show you how soon.

And if your loan modification fails...

We'll show you how to convert your loan modification paperwork into a short sale so you may prevent foreclosure and cut your losses.

Stay tuned!

Short Sale Negotiation: 1114 Kay Cir, Turlock, CA (Modesto area)

Here are the raw short sale negotiation notes/transcript from our internal system on 1114 Kay Cir, Turlock, California (near Modesto, yes we go outside Sacramento sometimes).

As you can see negotiating short sales is definitely not a walk in a park... more like climbing up a steep cliff. But we love the challenge of rescuing overleveraged homeowners (and banks!)

Friday, April 10 Note by Angela O.

I spoke with the Jessica in the Short Sale dept at WAMU / Chase today and she said this file does not show as being assigned to Rodney. I faxed her the email correspondence I had with Rodney last week where he asked me to fax him the HUD and purchase contract. She told me to call back on Monday for more information. She did not yet confirm if we could get the auction date postponed. [...]


Email from Angela O. to Rodney on Thu Apr 9

Hello Rodney,

Please see attached offer and HUD for the purchase of 1114 Kay Circle. Please also see the addendum showing the buyers will pay for the judgments on title. Please let me know if you need anything else. Also this property is set to go to auction on April 21st. Is there anyway you can get the date postponed so we can proceed with the short sale?

Thank you,
Angela O'Neil

-----Original Message-----
From: Rodney
Sent: Tuesday, March 17, 2009 4:58 PM
To: Angela O'Neil
Subject: RE: 1114 Kay Circle

Sure.

-----Original Message-----
From: Angela O'Neil
Sent: Tuesday, March 17, 2009 4:57 PM
To: Rodney
Subject: RE: 1114 Kay Circle

Hello Rodney,

Would you allow the buyers to come in with additional funds to pay for the judgments on title?

Thank you,
Angela O'Neil

-----Original Message-----
From: Rodney
Sent: Tuesday, March 17, 2009 3:56 PM
To: Angela O'Neil
Subject: RE: 1114 Kay Circle

Unfortunately, the bank will not pay it.

-----Original Message-----
From: Angela O'Neil
Sent: Tuesday, March 17, 2009 3:55 PM
To: Rodney
Subject: 1114 Kay Circle

Hello Rodney,

We recently faxed you a revised HUD showing two judgments on title with a combined amount of approximately $10K. Can you please let me know if these contractor's liens will be able to be paid in the Short Sale?

Thank you,

Angela O'Neil
West Coast Realty Group
2830 I Street, Suite 203
Sacramento, CA 95816

Tuesday, April 7 Note by CK.

Some agent called, said, [...] there are holes in the walls and evidence of a break-in [doesn't seem right, need to drive out there and investigate]

Tuesday, April 7 Note by Angela O.

I received an email from negotiator, he said once I have offer to email him the following:

1. Purchase Contract
2. Listing Agreement
3. Loan Approval for Buyer
4. Hardship Letter
5. Financial Worksheet
6. Estimated HUD

I am just waiting for offer

Monday, April 6 Note by Angela O.

I just received a call from a buyer agent; he is going to be faxing over an offer with an addendum for an additional 10K at close to cover judgements for his buyer. I will forward this to the bank as soon as I receive it.

Thursday, April 2 Task completed by Angela O.

[done] Pls update notes with latest status. I took a call from seller. See my latest note, thnx!

Thursday, April 2 Note by Angela O.

I received a call from a buyer agent regarding his clients offer. I explained the situation regarding the judgments on title. he is going to contact his clients to see if they want to lower their offer and do an addendum to bring in 10k at close to cover the judgments.

Thursday, April 2 Task completed by Angela O.

[done] talk to Angel about offers & bank

Thursday, April 2 Note by CK.

Just lowered by 20K to 169 and changed status to Short Sale. We really want an offer on this so we may stop the auction.

Thursday, April 2 Note by CK.

[Seller] called, her cousin called her this morning saying there is a Notice of Trustee Sale with a foreclosure auction date of April 21st. She was concerned about leans on the properties and being able to walk away free and clear. She is also concerned that there has been many showings but still no offers. (I thought there IS an offer?). [...]

Tuesday, March 31 Note by Angela O.

We have an offer that was received on 01/28/09. I sent him an email on 03/20 to see if his clients could bring in an additional 10k at closing to cover the two judgements on title. I have not heard back from him so I left him a follow up v/m today to see if his clients were still interested in the property.

Thursday, March 12 Note by Angel L.

Called and left a message to Rodney the negotiator regarding the two judgments also sending an email. Hope for some direction both lien holder are not negotiating.

Full Commission on Fannie Mae Short Sales, Yeah!

I posted yesterday about all the hard work that goes into a short sale. Here is a comment from Angel:

Yes they say the average transaction take 150 calls. Yes thats right between home inspections pest reports, title companies and agents the average transaction takes 150 calls. Now add the bank calls which in our office is two or three times a week. It is disappointing to get our pay checks cut. Though here in our office its about taking care of our clients and in the end we get taken care.. Lots of Referrals!! Keep taking good care of the client.

Seems unfair to cut the commission of hard working short sale agents... but things are starting to change!

On February 24th, Fannie Mae in Servicing Guide Announcement 09-03 [Here is the PDF] said the following:

No Negotiation of Preforeclosure Sales Commission

Effective March 1, 2009, closing of preforeclosure sales may not be conditioned upon a reduction of the total commission to be paid to real estate agents to a level below what was negotiated by the listing agent with the borrower, unless the fee exceeds 6 percent of the sales price of the property in aggregate. Servicers are reminded that they must continue to obtain any approvals that may be required by interested third parties in connection with preforeclosure sales.

No more reduced commissions on Fannie Mae loans, yeah! I like how Bill Gassett's take on it on Massachusetts Real Estate Voice:

Fannie Mae has recognized that negotiating commissions for short sales is unfair because of the extensive work required in many occasions that occur over many months and working with numerous buyers. Paying real estate agents fairly benefits Fannie Mae because Realtors play a crucial role in short sales. The fact that many banks would turn around after a foreclosure and offer commissions much higher did not make much sense.

Well, we're all glad the industry is finally starting to realize the importance of rewarding hard-working short sale "angels" who are helping everybody, including the banks, to cut their losses!

Lets hope other banks and servicers follow suit.

Short Sale is Free To You but Hard Work & Less Pay For The Short Sale Specialist Agent

Are you "underwater" on your house? Don't feel bad!

Most of us are overleveraged here in Sacramento - owing more on the home than what the home is worth. That's why if you can't afford your payments, selling the house "short" may be your only way out if you want to settle your mortgages, avoid foreclosure and save your credit.

The best part is...

A Short Sale is FREE to you!

What's the catch?

Basically, your lender pays for the real estate agent commissions.

Typically the commissions are paid by the sellers from the equity in the property. Well, you don't have any equity, otherwise you wouldn't be doing a short sale, right? And we as short sale specialists cannot afford to work for free either. So the bank allows the commissions to be paid out of their proceeds.

The issues is, the lender is already losing money so they will typically reduce our commissions. That doesn't seem too fair since short sales take MUCH more work than a typical transaction.

So What Exactly Does a Short Sale Real Estate Agent Do?

Realtors specializing in short sales do some of the hardest work in real estate:

1. Collect all the documentation for the short sale package. This includes filling out a bunch of forms, financial statements, and help you write the Hardship Letter. We put all the info into a nice short sale package and send to the bank to get the ball rolling.
   
   
2. Determine value by running comps (Comparable Market Analisys) to see what properties are selling for in your area. Your home's current value has nothing to do with your mortgage balance and everything to do with how much buyers are willing to pay.
   
   
3. List your house on the MLS as a "short sale" and market your property: through signs, ads, internet, existing client database, etc.
   
   
4. Manage phone calls from agents and buyers. Short sale listings generate a lot more calls from buyers' agents wondering where the short sale is at in the process.
   
   
5. Some buyers agents don't even show short sales, because their buyers don't want to wait for the approval process. It's true, short sales do take longer. However, if you're working with an experienced short sale agent the process goes much smoother/faster. The banks are starting to approve short sales faster too.
   
   
6. Lower the price incrementally until we get an offer. If we don't get some offers right away we will typically lower the price by $10,000 or more per week. We can't lower the price too fast. As professional Realtors we must look out for all parties' interests. That includes getting the bank as much money as possible to minimize their loss. It's a balancing act because of the foreclosure deadline. If the foreclosure auction date is approaching we drop the price more aggessively to get an offer and get an extension.
   
   
7. Screen out offers to make sure we get a strong buyer. It can takes weeks for the bank to review the offer and if they reject a low-ball offer or the buyer's loan falls through we're right back where we started. Sometimes we can keep the same contact at the bank and resume where we started with a new offer. However, many of the bigger lenders like Countrywide will start the process all over again with a new offer. Frustrating!
   
   
8. Negotiate with the bank and wait for approval. This is the most time consuming part. After submitting the offer the lender will take anywhere from a couple of days to a couple of months to give us approval. Often they will respond with a counter offer or flat out reject it. We work with the buyer's agent to raise or modify the offer (if they're still in the game). After 1st gives us green light we have negotiate with the second lender and any other lien holders.
   
   
9. Manage the closing. After we get approvals from all the lenders, the short sale becomes like a standard transaction. However, a number of things may go wrong here. Managing the escrow process is key since we have already put so much work in getting approval.
   

We do all this and then the bank cuts our commissions! (But it's OK, because somebody has to do it!)

On short sales the banks will typically reduce the commission from 6% down to 5% or even 4%. (Split between the buyer and seller agencies.) Also sometimes last-minute problems come up and because the lenders take so long to respond we will sometimes kick-in our commission to make the deal close.

With all that and the work required, no wonder so many agents hate doing short sales!

However, since short sales is our specialty we don't mind the challenges. Having done hundreds of short sale transactions has given us the experience and confidence to handle whatever comes up.

At the end of the day, the satisfaction of rescuing overleveraged homeowners is what keeps us going.

Improving Operations and Changing to "Realty Angels" Or Not?

We have taken a little bit of a break from the blog as we solidify a few things, improve operations and finish developing our "Angel" brand.

New developments:

1. Highrise CRM, a system for tracking transactions and contacts, so we can handle more deals and help more people with short sales. We all love it. Now we just need to make it talk to our other systems: PropertyMinder which runs the main AngelLynn.com website and By Referral Only. Perhaps we may elimitate or replace some of the systems since we've had issues. Will see.
   
2. New people on staff: Angela, our new assistant and short sale negotiator, and Rosie, our new buyer's agent. Both ladies are doing an awesome job!
3. Our own brokerage: Angel is also looking into finishing her broker's license. That's why we're working hard to pick the best name and theme.

Rebranding or Solidifying our Brand

For the last 3 months we have been looking into re-branding (or co-branding) as Realty Angels, inspired by the Charlie's Angels movie theme.

Just a fun example, not our final look or logo:

It's a cute name and would emphasize the action and adventure of the real estate business that many people don't get to see.

We may want to turn down the sex appeal just a little bit, make it more classy and project the idea of "guardian angels" more.

Although we finally do have the 3 ladies who would definitely quality to fit the "action heroine" role.

As a brokerage name it may make it easier to attract other agents who want to build up their own name under the Realty Angels umbrella. The brand is catchy and flexible.

But we also like the existing Angel Lynn brand and the idea of calling the brokerage Angel Lynn Realty. We would just need to polish it a bit.

Or perhaps we can do both, something like "Angel Lynn and The Realty Angels". Decisions decisions.

My Short Sale Angel will continue for now as a side project focusing specifically on short sales, loan modifications, Sacramento real estate and foreclosure news, etc.