James R. Samsing's Real Estate Blog

With a majority of sellers in my local markets of Avondale, Goodyear, Glendale, Litchfield Park, and Surprise, Arizona "upside down", this is a question I am often asked. There really is only one answer for families in this situation...a "short sale."

A short sale is an agreement where the lender on the property agrees to accept less than the full balance owed on the mortgage. Short sales are complex transactions that typically take 4-8 weeks to complete and require an experienced (and persistent) Realtor to manage. I have previously written several blogs about how to complete short sales which can be read here: Short Sale Blog

Why should homeowners consider a short sale?

There are a number of reasons to consider a short sale. For example, if you need to sell as the result of a job relocation and cannot afford negative rents on your property, a short sale would be the preferred option. Many homeowners in my local area are stationed at Luke Air Force base in Glendale, AZ and have been forced into doing short sales when they are transferred to another base. Another reason to do a short sale is to save your personal credit. In the past 12-18 months many homeowners have found themselves in the unenviable position of not being able to afford their home due to a job loss, rate adjustment or family emergency. In a normal market, many of these families would be able to refinance or sell their property. But today, the only sensible option is to sell through a short sale.

Is a short sale right for you?

Every homeowner's situation is unique and there is no one right answer to this question. When counseling homeowners I generally focus on 3 key questions:

1. Why do you need to sell? If you don't absolutely need to sell then a short sale should be the last option considered.
2. Are there other options available to you? I generally recommend homeowners consider other options before resorting to a short sale. Refinancing, loan modification and renting the property are generally preferred options to a short sale.
3. What do you plan to do after the short sale is completed? Homeowners need to consider the consequences of a short sale and plan for their future housing needs.    

What are the impacts of a short sale?

There are 3 consequences every home seller should evaluate before making the decision to apply for a short sale.

• What is the impact to your credit rating? Short sales generally appear on a credit report similar to a large charge off. I have seen several that appear with the unusual phrasing "Debt Paid in Full Less Than the Full Amount." It has been my experience that by themselves, short sales generally lower credit scores by 50-100 points. If a homeowner is able to keep their payments current up until the home is sold, they suffer very little in terms of derogatory credit when completing a short sale. For those homeowners who become delinquent on their mortgage, the credit score will be more adversely affected by the late payments than they will by the short sale. Regardless, a short sale on a credit report is substantially better than a foreclosure (or deed in lieu) and allows the home seller to be able to qualify for new mortgage financing in a much shorter period of time. The current minimum waiting period after a foreclosure is 4 years for Fannie Mae & Freddie Mac. Homeowners who are able to maintain a perfect mortgage payment history through a short sale may be able to qualify for a mortgage after only 1 year. And finally, please know that you do not need to be behind on your mortgage payments to qualify for a short sale. I have seen many short sales approved where the homeowner is able to make payments throughout the short sale process. There does, however, need to be a pressing "hardship" for the bank to consider accepting a short payoff.    

• Is there a potential that the unpaid debt could remain as a consumer loan? This is particularly a concern where the homeowner has a 2^nd or "piggy back" mortgage on the property. Many 2^nd mortgages, especially home equity lines of credit, contain provisions that allow the note holder to convert any unpaid mortgage balance into a consumer debt. It is also fairly common for banks to request that a consumer assume some form of future liability as a condition for approving a short sale. As I mentioned before, every homeowner's situation is unique and each seller should evaluate these options individually. But it has been my experience that it rarely makes sense for consumers to accept any deficiency debt to be applied to their personal credit; particularly in states like Arizona which normally prohibits deficiency judgments on owner occupied 1-4 unit residential property. 

• What are the tax consequences? The good news is that the federal government recently created new tax exemptions for homeowners who complete short sales. Generally speaking, homeowners who occupied their properties and did not withdraw substantial equity from their home are eligible. However, it is always advisable that you consult a licensed CPA/Tax Accountant to determine what your potential tax consequences will be before proceeding with a short sale. You don't want to find out months later that you have a $25,000 capital gains tax bill from your short sale.  

Short sales are complicated transactions but can be the best option for struggling homeowners. I hope these comments have assisted those who are considering a short sale.

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My local service area which includes the Phoenix West Valley cities of Avondale, Goodyear, Litchfield Park, Surprise and Glendale has been one of the hardest hit real estate markets in the country. As a result, most new clients in these cities always want to start with foreclosures. Thanks to dozens of late night infomercials and a host of real estate companies touting foreclosure auctions, the average consumer assumes that bank owned properties always sell below the market. They have been trained into thinking that they can find houses for 50 cents on the dollar and that banks are desperate sellers looking to rid themselves of any house on their books.

Unfortunately this misguided information often leads consumers to overpay for property or to miss the best deals in their search area.

I just spent the past 2 weekends at the REDC auctions in Phoenix and Mesa. I personally inspected every home in my local market and watched as hundreds of these homes were sold. While it is true that a small percentage did sell well below market prices (about 15-20%), the overwhelming majority of properties at these auctions sold at or near the current market price. This is particularly true when you factor in the "Buyer's Premium" of 5% that the auctioneer adds to the winning bid. Many of these homebuyers were obviously unaware of the condition of the home they were buying, underestimated the cost to cure the property, or simply did not know about current active listings that were comparable to their subject. In one case a buyer purchased a home for $85,000 (+ a 5% buyer's premium) when there was an IDENTICAL (model match) home in BETTER condition NEXT DOOR that is currently listed for $75K! Ugh.

And of course there is the "Previously Valued To" figures thrown out by the auctioneer. I love those. The auctioneer puts that figure in big bold print above the property address every time. As though somehow knowing that the home was once worth $350K is going to change the fact that it's worth $95K today. But I imagine there are some consumers who get fooled by these numbers.

The point I am obviously making is that not all banked owned properties are "deals." Yes, it is true you can find REO property offered well below the current market. And yes, now really is a great time to buy. But every transaction is unique and must be evaluated on its own merits in light of current market conditions.

So where should home buyers turn if they really want the best deals? I would argue that short sales, on average, are better deals than foreclosures. In fact, as my local markets have started to pick up over the last 45-60 days, I would say that short sales have become an even better deal relative to foreclosures.

How is this possible? Consider the following:

1. A Short Sale typically sells for the same or lower price than a foreclosure. This is because:
   1. The seller is disinterested in price - they just want to clear the debt and save their credit rating.
   2. Banks will agree to take less because they are avoiding the cost and delay of foreclosure proceedings.
2. Short sales are generally in far better condition than bank owned homes. Unlike foreclosed properties which are often missing appliances and have significant deferred maintenance, short sale properties are often kept up by the seller to ensure they sell. In many cases the seller is still occupying the property. As a result, there is far less cost to cure a short sale property than there is an REO. 
3. Short sales attract fewer buyers because of the time delays and hassles. Consequently, there is less price competition from other buyers.

The key difference with short sales is that you need to be a patient buyer. Short Sales generally take 4-8 weeks to get an approval from the bank. This is substantially longer than bank owned properties where you usually receive an answer within a few days.

As I mentioned earlier, every transaction is unique and should be evaluated in light of current market conditions. Naturally I would recommend that consumers employ a qualified Realtor to assist with the analysis. But if you are a buyer who does not need to close right away, then I would implore you to ask your Realtor to make short sales a part of your search.

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In recent weeks I have been dealing with the false perception amongst some of my clients that a home buyer in today's market needs to have a sizable down payment. It seems that between the government assertions that we "need to get credit flowing again" to the media's constant negativity about banks and the housing markets, prospective home buyers have been scared into thinking that affordable low down payment loans are no longer available. Not only is this NOT true, but the current economic crisis has actually created NEW and BETTER buying opportunities for home buyers with little or no money down.

How is this possible? The answer is simple.

First, home prices have fallen so low that properties once out of reach of government loan programs like FHA, VA & USDA, are now well within these government loan limits. For example, in 2005 it was almost impossible for an airman stationed at Luke Air Force Base in Glendale, AZ to qualify to buy the medium home price in the surrounding communities of Litchfield Park, Goodyear, Glendale, or Surprise. Today these real estate markets have fallen by more than 50% with homes priced at $300,000 in 2005 now selling for under $150,000. With rates under 5% that same airmen can buy a beautiful home for less than it would cost to rent! With zero money down!!!    

Second, the glut of foreclosed homes owned by the government and big banks has forced these institutions to offer special financing and incentives to lure buyers. These wonderful NEW programs, combined with historically low interest rates, are better than anything offered during the "boom" years.     

So, how do you take advantage of these changes? Here are some of the easiest ways to buy a home with little or no money out of your pocket:

1. Obtain FHA Financing. In most parts of the country the median home price has fallen well below local FHA loans limits. In my market (West Valley Phoenix, AZ), a vast majority of properties are eligible for FHA financing. Some key advantages of FHA loans:
   1. 3.5% Down Payment
   2. Easier to Qualify than Fannie Mae or Freddie Mac
   3. Seller paid closing costs
   4. Inexpensive, guaranteed mortgage insurance (Cheaper than PMI)
   5. Interest rates comparable to conventional loans which are at historically low levels!
2. Buy a Fannie Mae or Freddie Mac Owned Home. Both of these "Government Sponsored Enterprises" have enormous inventories of properties listed for sale. You can view Fannie Mae owned homes by clicking FNMA OWNED HOMES and Freddie Mac homes by clicking FHLMC OWNED HOMES. Some special characteristics of buying a GSE owned home:
   1. 3% Down Payment with NO Mortgage Insurance
   2. Easier qualifying guidelines than traditional conventional loans
   3. Special seller incentives including seller-paid closing costs
   4. GSE owned homes are often priced well below the current market!  
3. Buy a HUD Owned Home. While the US Department of Housing and Urban Development does not have as large of an inventory as Fannie Mae and Freddie Mac, they still maintain a sizeable quantity of government owned homes. You can view HUD homes for sale by visiting HUD OWNED HOMES. Some things to consider when buying a HUD home:
   1. $100 Down Payment. Yes, that's right, $100!
   2. Seller Paid Closing Costs
   3. Interest rates comparable to conventional loans which are at historically low levels
   4. HUD owned homes are often priced well below the current market.
4. VA Loan for Veterans. VA loans exist for US Veterans and active duty service personnel. Like FHA loans, VA loan limits often exceed median home prices in most markets. Some key features of VA loans:
   1. Zero Down Payment
   2. Seller Paid Closing Cost
   3. No MI Insurance (although there is a VA Funding Fee added to initial loan)
   4. Easier to qualify than Fannie Mae or Freddie Mac
   5. Interest rates comparable to conventional loans which are at historically low levels
5. USDA Loans. Although designed for "Rural" property, USDA loans can often be used to buy residential property in select zip codes. USDA defines "rural" as communities with fewer than 20,000 in population so many suburbs are eligible under this program. USDA loans require zero down payment and have easier qualifications than conventional loans. However, there are specific income and property requirements so you should speak to a USDA loan expert before considering this option. You can learn more about USDA loans by visiting USDA Single Family.  

Please keep in mind that this is not an exhaustive list of low down payment sources. There are numerous state and local programs that may also be available. For example, my local cities of Goodyear, Avondale, Glendale, Surprise and Phoenix all offer some form of government assistance for buying foreclosed properties. You should check with your local Realtor for information regarding these programs.

Finally, I should note that all of these loan programs do typically require good credit and full income qualifying. Generally speaking you will need a minimum credit score of 580-620 to qualify, and your total debts cannot exceed more than 38%-43% of your gross monthly income. And these programs are designed for owner occupied buyers, not investors.

There truly has never been a better time to buy property than right now. I only hope that prospective home buyers are able to see through the clutter and negativity to realize what a tremendous opportunity awaits them in today's real estate market...

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The local markets I serve, Litchfield Park, Goodyear, Avondale, Surprise and Glendale, Arizona (West Valley Phoenix) have been some of the hardest hit areas in the nation. Many of our local communities have witnessed price drops in excess of 50% from 2004-2008. I field calls almost daily from homeowners who purchased a property in 2004-2005 and who are now more than 200% upside down! Dealing with sellers in this market has been depressing and difficult, and like many of you I have been longing to feel good about my market again.

However, recently things have started to "seem" different. Maybe it's just me, or maybe it's just my local market, but the last 30 days has begun to "feel" like productive real estate activity is picking up. I can't exactly put my finger on why I feel this way, but there are a bunch of silly little things I've noticed recently like regularly running into other agents with their clients at listings, or the number of business cards left on coffee tables.

Sure, I could point to a lot of recent positive statistics about home resales, low interest rates, and government stimulus programs. Or I could discuss the fact that most bank owned homes receive multiple offers in a week, and how it's becoming more common to see sold prices in excess of list prices on CMAs. Those are tangible proof of a bottom, right?

But I could also point to the wave of foreclosures on the horizon, the continuing international financial crisis, rising unemployment, blighted communities abandoned by developers...yada, yada, yada. Or I could just post a video about a former Wall Street executive delivering pizzas or driving a cab. 

But whatever the numbers, my gut is telling me something has changed. I believe in the idea that demand for residential real estate ownership is relatively constant, and that affordability and population demographics are the biggest drivers of appreciation. So perhaps when I see school bus drivers and Wal Mart employees buying homes that senior executives could barely afford 3 years ago, it sparks my instincts? Or maybe I remember commuter cities in Southern California during the mid 1990's when similar signs pointed to a recovery in those markets that had been decimated?

Or could it be that I just want to believe so badly that things are getting better that I have exaggerated little positive signs into macro economic indicators?  

So which is it? Has the real estate market finally reached a bottom? Is it beginning to level off? Or am I crazy and we are still skiing down a steep slope?

Then again, maybe I should stop worrying about it and just get back to work. I have a multiple offer situation to deal with on a bank owned home that just came on the market yesterday...

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I started investing in foreclosed properties in 1996. I can still remember the very first investment property I ever purchased. It was at a live auction of HUD homes located in the Inland Empire of Southern California. I had spent weeks investigating about 300 properties for sale and had narrowed my list to about 25 homes that I would buy if the price was right. I was 25 years old and in debt up to my eyeballs so I could afford the 25% down payment required for investors. I was planning on using credit cards to pay for improvements and make the house payment until I could repair and sell the property. But that didn't worry me because I was young, smart and going to be the next Donald Trump...

As it turns the auction was an incredibly intimidating place and I was scared to death. There were amped up auctioneers running around, pointing at people and shouting at the top of their lungs. I thought twice about bidding because I didn't want one of those sharks to come running over and hover near me. When the first of my 25 homes came up for bid, I was thinking of holding back and that maybe I was getting in over my head.

5 minutes later I was being ushered into an escrow room to sign paperwork for the $57,000 house I had just bought. I was young, inexperienced, and leveraged to the gills. But I was lucky, and in spite of many mistakes, I still managed to earn a small profit on that first house.

Today after years of investing in real estate I have learned much. And although markets change, there are certain universal truths about investing in real estate that don't. I have struggled explaining this during the recent boom years, when it seemed that I was always "raining on the parade" of potential investors seeking to earn easy money in a hot market. But today is a new world, and opportunity abounds for those willing to invest intelligently.

For those that are thinking of taking the plunge, here is my advice for investing in residential real estate; particularly foreclosures:

1. The "real" value of real estate is set by the marketplace. Unless you are sticking a gun to someone's head, chances are the price you pay for a home is close to what the house is worth in its present condition. Do not be fooled into thinking it is worth substantially more than what you are paying because if it was, somebody else would be buying the home for a higher price. And most definitely don't pay attention to what the home sold for 3 years ago. If I had a dime for every time a Realtor told a client "This foreclosure is a steal at $200,000...just 3 years ago it sold for $500,000!" Yeah and 3 years ago I was 20 pounds lighter, didn't have any grey hair, and thought owning stock in Fannie Mae and Lehman Brothers was a good idea. The point is to be realistic about the potential value of a home; especially if you are thinking of flipping for a quick profit.
2. Never buy a home with a net negative cash flow. EVER. And make sure you get your numbers right. Evaluate local rents so you are absolutely certain of the amount you can lease the property for. Assume that 25% of your gross rents will be eaten up by vacancy, maintenance and general tenant neglect. Don't forget to include debt service, insurance, taxes, association and management fees when adding up your costs. I've never understood why some investors are willing to lose money in the short term in order to gamble on long term appreciation! Would you buy a stock that required YOU to pay a dividend each month to hold on to it??? 
3. Stick to single family detached homes, with a minimum of 3 bedrooms, 1.5 bathrooms, and 1000-1200 sq ft. Avoid condos, townhomes, planned unit developments or anything with shared walls. There are three reasons for this. One, single family homes historically appreciate faster/hold their value better as a result of a larger pool of buyers who prefer a detached home. Two, condos and townhomes typically come with greater operational costs in the form of HOA dues lowering net cash flow. And three, investors are more at the mercy of the decisions of others when it comes to their investment. <<shiver>>  
4. Unless you are a licensed contractor, or Tim "Tool Time" Taylor, avoid major renovation projects. I know, you've seen all of those shows on Bravo and HGTV and think you can do the major repair and flip deals. But let me tell you from past experience that it just takes one big mistake about the cost to cure a property to empty your pocket book. Besides, in most markets today you don't need to deal with major renovation projects in order to find a solid investment opportunity.    
5. Buy the worst house in the best neighborhood.

So what exactly is my idea of a good investment opportunity in today's environment?

In the local markets I serve, Litchfield Park, Goodyear, Avondale, Surprise and Glendale, Arizona, we have an abundance of banked owned, government owned and short sale homes. A large number of them were built between 2000-2005, are located in newer communities, have relatively minor cosmetic repairs needed and can be rented for positive cash flow. An investor could purchase a home in these areas today for under $60K cash and rent the property for $800-$900/month. Or the investor could leverage, put 25% down, and still achieve a similar "cash on cash" return. Do the math. That's a 13+% annual return with below market rents! Hell, even if the tenant skipped every other month's rent payment (50% vacancy) the investor would still earn 6-7%. And that's without any appreciation in the value of the property.

I know there are a lot of "stung" investors out there who rode the recent real estate boom only to lose a large amount of money in the last 2 years. And I know that rising unemployment and general economic problems are scaring away many would be investors. But I can tell you from personal experience, now really is the time to acquire property in a sensible way that can offer exceptional returns. The market has finally shifted back in favor of the conservative investor...

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Far be it for me to disagree with the venerable Mr. Warren Buffet but I just about choked when I read his recent comments regarding mortgage lending and the housing crisis. In his Annual Letter to Berkshire Hathaway shareholders Mr. Buffet indicated that "home purchases should involve an honest-to-God down payment of at least ten percent." This paradoxical statement immediately follows his observation that "commentary about the current housing crisis often ignores the crucial fact that most foreclosures do not occur because a house is worth less than its mortgage (so-called upside down loans)."  So if foreclosures don't occur because of the absence of equity, then what exactly is the purpose of the down payment?

As a mortgage and real estate veteran of nearly 20 years, I am frustrated that the media continues to focus on low down payment and "liar loans" as the primary cause of the current housing crisis (with rising unemployment a legitimate 3^rd strike). I am particularly concerned that this misinformed analysis of mortgage defaults is missing key elements of risk and is shaping government lending standards (which now represent the vast majority of the mortgage market) in a way that is counterproductive.

For example, what benefit was derived by HUD's recent increase in the FHA 203B program from 3.0% to 3.5%? Does the government actually believe that a home buyer putting an extra .5% down payment is less likely to default? This while FHA still allows people to qualify with total debt in excess of  50% of their take home pay and with ZERO cash reserves. I guess HUD would rather have their borrowers put every last dime they have into a house rather than save a little for a rainy day...

Personally, I believe that zero/low down payment loan programs can perform at high rates under any market condition within the context of proper lending guidelines. These guidelines would include full income documentation, debt ratios in line with FNMA/FHLMC (28/36), A DISPOSABLE INCOME REQUIREMENT to ensure that borrowers have enough variable income to afford non-housing items, a liquid reserve requirement the equivalent to 6 months of housing payments, and mortgage insurance to provide 25% coverage for the lender. As a lender I would much rather have a borrower with a more solid capacity to repay and cash reserves rather than a consumer leveraged up to their eyeballs so they can put 10% into a home purchase.

But no, all I hear from business pundits today is that we should be requiring people to put more money down when they buy a home. Like 10% "skin in the game" is really going to make a difference in ANY declining market. Tell that to my neighbor who paid $800,000 for his house 3.5 years ago, is being transferred and is trying to sell his home for $320,000 today. 

Fortunately there are a few low down payment options still available. FHA offers $100 down payments on HUD owned properties in addition to their standard 3.5% down payment requirement on non-HUD listings (down payment can still be a gift). FNMA is currently offering 3% down payment loans with no mortgage insurance on its REO listings. And of course there are still "zero down" VA and USDA loans for those who meet the requirements.

The markets I serve, Litchfield Park, Goodyear, Surprise, Avondale and Glendale, AZ have a decent selection of HUD & FNMA REO properties that I can show to clients looking for a low down payment option, so it hasn't affected my business as much. But I can't wait for the day when sensible lending guidelines return and these programs will be more widely available.  

No really, I'm not kidding.  

I did.

Like many of you I was once stuck living in an expensive metropolitan area, stressed about keeping my job because I had a wife, 4 kids and a $6500/mo house payment. That's $6500/mo so I could live in a 30 year-old, 4 bedroom, 3 bath, 3,000 sq ft tract home in an average neighborhood of Southern California. 

Today I live in a newer, 5bd/5ba, 4,600 sq ft home on 1/3rd acre, in a gated community with a pool, spa and every amenity you could dream of. My kids attend a great school, with amazing teachers and new facilities. My son plays Little League on fields used by major leaguers for spring training. I get to play golf on dozens of world class courses, some for less than $20. I can go snow AND water skiing if I want to...in the same day. I have incredible shopping, entertainment and sporting venues all around me. And just about every day I get to see some of the most dramatic landscapes on the planet and enjoy the most amazing sunsets imaginable.   

But best of all my annual house payment is less than my old property tax bill. I no longer worry about making ends meet because I could flip burgers for a living and still enjoy my current standard of living. And Arizona's unemployment rate is still below the national average, with new industries relocating to Phoenix, which is definitely reassuring.  

In the Arizona communities I serve - Litchfield Park-Goodyear-Surprise-Avondale-Glendale - there are currently more than 400 single family home listings under $100K. These are all homes that were built this decade, with at least 3 bedrooms, 2 baths, and 1500 sq ft. There are currently 1,400+ listings available up to $150K. And more than 2,000 properties are available up to $200K!

I just showed a banked owned home a few days ago where the lender had painted, installed new carpeting, and fixed the pool, spa and rock waterfall/slide. It's a 4bd/3ba, 3600 sq ft home with a bonus room built in 2004 and was listed for $184,000. Assuming good credit you can buy this house with a $6,500 down payment and a fully amortizing, 5 %, 30-yr fixed rate, PI payment of $954/month (5.766% APR). I know people with car payments bigger than that! For a beautiful 3,600 sq ft house!?

Better still, I just viewed a nice 4bd/2ba home in a new community in Goodyear last week that was listed for $58,500!!! I feel like I'm a character in a TV show and just got transported back to the year 1995. There are so many incredible houses for sale in my market under $50/sq ft that it blows my mind.   

So if you're reading this, and you're living in some other place worried about maintaining your standard of living, just start packing now. Move to Arizona. You won't regret it.

Now if you'll excuse me, I'm going for a dip in the pool. It's 80 degrees and sunny outside on this fine February day...way too nice to be inside writing a blog!

Over the course of the last week I've had the chance to read a large number of blogs and Realtor posts regarding short sales. I can't imagine there is another subject with a wider degree of opinion! There is so much information, both good and bad, it is easy to see how consumers and Realtors alike are easily confused. 

I have been a licensed Broker since 1995, but for nearly 20 years I have been principally engaged in the lending side of the business. During that time I have helped hundreds of consumers negotiate short payoffs of private and institutional loans, obtain prepayment penalty waivers, perform rate modifications on existing loans and assist with lien payoff resolutions including IRS tax liens.

Short sales and loan modifications are nothing new.

What has changed is the sheer volume of consumers who are upside down on their homes and the complexity of the mortgages they hold. This has created a tremendous market for short sale "experts" and loan modification "specialists" who offer services to desperate homeowners. And it's created a log jam at loan servicing departments with overwhelmed loss mitigation units processing inordinate numbers of applications. Of course, compounding the problem is this crazy financial services environment where the major servicers (retail banks) are incapable of adequately staffing temporary loss mitigation departments due to their financial condition. Oh, and don't forget the hideous maze of ownership rights to modern mortgages; many of whom have been sliced and diced from mortgage pools into CDOs with no clear owner, and a servicer with no vested interest in the loan itself. Fun Stuff!

Yet in spite of this there are plenty of local Realtors and Loan Modification Companies touting themselves as short sale experts with the ability to make the process "easy," "simple" or "fast."

Uh huh.

Short sale situations are as varied as the stars in the sky. Every consumer's situation is different and there is no single cookie cutter/template that will work for everyone. With that in mind here is my best attempt to provide some general guidance to homeowners or Realtors seeking to sell a home for less than is owed on the mortgage(s).

Bit of Advice #1. Get to the right people the first time around.

Mortgage ownership and servicing rights change hands at an ever more rapid pace. It is important to know WHO owns your mortgage and WHAT department handles short payoff approvals.

If you aren't sure of who owns the mortgage, perform a free search through the MERS (Mortgage Electronic Registration System) website: https://www.mers-servicerid.org/sis/  MERS is a national registration system for mortgage loans and nearly all institutional loans are registered with them.

Once you have determined who the correct servicer/owner of your mortgage is, then you need to identify which department handles short sale approvals. Do not contact the general toll free number listed on a mortgage statement or website unless you want to spend lots of time listening to "sold on hold" messages while being bounced from person to person. I generally "Google" the specific company department I am looking for if I cannot find it in my own rolodex. There are a few free public lists of Loss Mitigation Departments that you might also try. Here is one I recently found: http://iamfacingforeclosure.com/blog/loss-mitigation-phone-numbers/

Once you contact the appropriate Loss Mitigation department make sure to get a detailed list of their requirements, including any company specific forms they require. Do not use a cookie cutter template provided by some 3^rd party.  

Note: If you are dealing with multiple institutional mortgages on a single property then - in my opinion - you are trying to do the impossible. However, you can get short sale approvals done when the 1^st & 2^nd mortgages are owned by the same company. Many lenders now have "Co-Loss Mitigation" Units that workout settlements on multiple loans simultaneously. I recently completed a short sale in Southern California with Wells Fargo by working with a group specifically setup to negotiate on behalf of Wells Fargo Mortgage (1sts) and Wells Fargo Home Equity (2nds).

Bit of Advice #2: Hardship, smardship. You have a sad story, boo hoo hoo. Now what's in it for us?

If you scan the internet you will find hundreds of samples for short sale hardship letters. Too often they focus on the borrower's reasons for needing a short sale and not the bank's reasons for accepting the short payoff. It is ok to spell out hardship but FOCUS ON THE REASONS WHY THE BANK SHOULD ACCEPT YOUR PETITION. The bank only cares about getting the maximum amount of money, in the shortest amount of time. Anything you can point out to that effect should be at the heart of your letter and application.

And be as detailed and accurate as possible. You will need an estimated HUD-1 that is spot on. And if you are looking for a pre-approval, or if you can't get the numbers to be deadly accurate, then make sure to add a minor level of padding to allow yourself some wiggle room with negotiations. Remember that the Loss Mitigator is also looking for some sort of "win" and, as it is with your clients, it's much better to under-promise and over-deliver. Besides, if the deal ends up short to close guess where the extra money is likely going to come from??? It isn't going to be from the lender whose agreed to take tens (or hundreds) of thousands less on their loan!

The key here is that you want to give the Loss Mitigation Officer as many reasons as possible to approve the short sale. Which leads me to my next piece of advice...

Bit of Advice #3. Know who you are dealing with.

Imagine yourself working in a temporary/contract $40,000 year job, sitting in a cubicle farm surrounded by hundreds (if not thousands) of other collection professionals. Your daily work life resembles a Dilbert cartoon with stacks of files on your desk that stretch to the ceiling. Pinned to the punchboards on your cubicle walls are "Matrices" of loss mitigation guidelines which spell out what you must review and what you are permitted to approve. Your phone rings incessantly and you have 14 new voicemail messages, each from some histerical Realtor or homeowner wondering when their application will be approved. You can barely go to the bathroom without someone's permission let alone approve an exception from the "greater of 80% payoff or 100% of bank AVM" rule in your region. Those exceptions require the written approval of a Loss Mitigation Officer II-A and you have only been with the bank 6 months... 

Do you really want to harass this guy? You think he really wants to take your call? Bother him too much and my guess is your short sale application will be placed in the "cylinder filing cabinet."

Instead, be nice. Don't call and harass anyone. Get an e-mail address. Nearly all of the banks have a generic e-mail string like john.doe@bankofamerica.com. Send him polite update requests every few days that he can respond to at his leisure. Keep him apprised of any market conditions regarding the subject property that might hasten his decision. Remind him of important milestones in the purchase contract. Offer to bake him cookies. Whatever it takes (within legal limits) to keep him engaged with you and your file.

Last Bit of Advice (For Realtors Only):  Own the process.  

I live and work in the West Valley of Phoenix and there is hardly a home seller here who is not upside down. I know a lot of Realtors who choose to avoid short sale listings altogether because of the time and energy they take. Others choose to use 3^rd party vendors and leave it up to someone else to do most of the work. While I would never advocate that Realtors spin their wheels and work for free, I do believe that we all have some degree of responsibility to the markets and communities we serve. And remember, the more short sales we close, the fewer foreclosures there will be, the greater the number of qualified buyers that will exist in the future, and the faster we will return to a period of home value appreciation. 

There's my 2 cents. My sympathies to the millions of homeowners in this country who are upside down on their home through no fault of your own. I wish you the best of luck.