Friday, October 30, 2009

Trick-R-Treat Transactions

Tonight is the night thousands of Edmond children look forward to for nearly an entire year. It’s the night when most Edmond homes will have the porch light on welcoming the masquerading mob to “come by our house for Trick-R-Treat”. The Trick-R-Treating goes both ways. Children dress up to receive the treats, but it’s the adults who enjoy seeing the children who receive the best treat of all. It is also an unfortunate fact that there will be some Edmond residents who will become the target of some youth’s “trick” instead of “treat”.

The day of closing on a new home is equally exciting for the new home buyer. Unfortunately some of these transactions are much like Halloween night; closing is promised to be a treat, but instead it turns out to be filled with infuriating tricks.

George Carlton is a veteran real estate professional with Keller William Edmond, who has seen just about everything that can go wrong with a closing. But still even he is sometimes shocked at the changes that are passed down from some lenders even after the buyers have been pre-approved. Carlton relates this story. “The day before closing our seller loaded up the contents of their house in a moving van and started out for their new home in Atlanta. That same day the underwriter for the lender discovered something in the borrower’s application that caused them to deny the mortgage. Now our sellers are forced to live out the nightmare of finding a way to make two mortgage payments and deal with the stress of moving the family half-way across the country.”

Short sales are becoming a regular part of the real estate landscape. A short sale is a housing transaction where the amount owed against the property exceeds the market value. The lender must decide whether or not they will agree to settle the mortgage for less than it actually owed by the borrower. Without question, this type of transaction holds some of the greatest opportunity or surprise.

“Short sales are terrifying because most sellers don’t know what they are doing”, says Morrie Shepherd, Owner/Broker of Metro First Realty, OKC. Sellers in this “short” position typically wait too long before contacting a real estate professional experienced in short sales. Shepherd says the best advice for sellers in this position is to, “start early; don’t wait for the notice of the Sherriff sale to contact a short sale specialist.”

The short sale transaction is filled with more potential traps and surprises than are found in an Indiana Jones movie. Shepherd says, “One of the most terrifying aspects of these transactions is the seller find themselves held captive by the lender”. Because the lender holds the note they control any negotiation for a short sale. If you find yourself in this situation, who are you going to call? Ghostbusters can’t help, Shepherd recommends, “Call a real estate professional experienced in short sales.”

First time home buyers have found a great incentive in the $8,000 tax credit offered by Uncle Sam. This program is scheduled to end November 31, 2009 but it appears that congress will extend a modified version of this program until April 30, 2010. More to come when congress makes their final decision and announces the details of the program.

Eric Rognas is a real estate professional also with Keller Williams Edmond. He recently represented a young couple buying a home wanting to take advantage of the $8,000 tax credit as well as the monies available from the City of Edmond Community Development Block Grant (CDBG). When using down payment assistance funds the borrower’s file must pass underwriting from the lender as well as a battery of tests from the CDBG. In this couple’s example, their file passed the lender’s underwriting but failed one of the CDBG tests the day of closing.

The wife’s mother had co-signed with the couple and when her income was calculated together with the couple’s income, it exceeded the allowable limits established by the CDBG. Everyone scrambled, new documents were signed, the closing was delayed by a day and the couple closed on the house. But due to the changes, the funds for the transaction were not distributed for an additional three days. What a horror story for everyone involved.