Homeowners who are in financial trouble with their property sometimes wait too long to seek help, and then cannot mitigate the situation with a loan modification, a short sale or a deed in leiu of foreclosure. They wait so long and miss so many payments that significant harm is done.  The embarrassment, the sense of failure, the significant feelings of loss can keep home owners from reaching out for advice and guidance. This is happening on a big scale and is happening within my own close circle of loved ones too.

Recently a friend of mine, with whom I’ve done several transactions, informed me that she’d done a short sale with her home through a local attorney and hadn’t wanted to bother me with it, though she knew I’d have been willing to help.  (She was right: I would have.)

I was stunned on several counts, most of all that we hadn’t talked before she did it; I truly think it matters tremendously to do a good amount of information-gathering, and talking with trusted sources, before pulling the trigger on something big like this.  But very often, people become more private when under financial pressure. (Others are virtually in denial.)  This really just makes things worse since they may make huge decisions with insufficient information.

After a moment or two, I also realized I’d never seen her San Jose condo on the MLS and asked her how it could have sold without my noticing it.  She told me that a lawyer had helped her to effect the transaction, but he’s not a Realtor and it was never put on the multiple listing or marketed like a regular home for sale (aiming to get the highest price via the most qualified traffic).   He brought in only a few people and one of them bought it.  “I asked him how much he charged and he told me that the bank would pay the fee”, she offered.  She didn’t seem to know how much he’d been paid.  The sale was done, though, and she was relieved.  I was glad that she felt relieved but not convinced that her financial danger was over.

Feeling protective and worried about her being chased down later for the forgiven debt, I asked her if there would be any deficiency judgment. She didn’t know what I was talking about.  I tried to clarify by adding “are they going to send you a 1099?” (reflecting the “phantom income” or forgiven debt) – again, no idea what I was talking about.  There were other things, too, which pointed to the fact that although she’d gone through a short sale, and the sale was closed, there were an awful lot of things which she simply didn’t understand.  I’m not convinced that she comprehended the risks of what was involved even after the close of escrow. I am hoping that her lawyer didn’t have her sign off without a promise from the lender that there would be no deficiency judgment – but since she didn’t know about it, I’m not so sure that happened.

A rush to action could have been prevented with a little research and some conversations with more than just one professional.  When I speak to a home owner who’s considering a short sale (or deed in leiu or just walking away), I always suggest that he or she consult with an attorney and also a tax professional; these professionals can speak to issues that are not my area of expertise. A big plus, usually, is that there is no “vested interest” on the part of the lawyer or tax professional in advising one way or the other. He or she gets paid for advice and does not gain from there being a short sale (or lose for lack of it).  That neutral, unbiased advice is crucially important.  As a Realtor, I should not advise anyone to do or not do a short sale.  One big reason is simply that I stand to get paid with a short sale, but not if other avenues are taken.  In the case of my friend, the person advising her to do the short sale did profit from her following that advice.  I am concerned about that.  But it’s too late – so nothing I can do to help and I certainly don’t want her to feel bad about it so of course just let it lie.  I am hoping she will be ok.  I’d feel more certain of it if she understood better what she had done.

For my readers, though, I want to encourage you, if you’re in trouble, to not just do something impulsively and without consideration, but instead, please do some research and reflection.

Of course, I have seen the other extreme too, where instead of spontaneously jumping into it, Silicon Valley home owners carefully decide to do a short sale but then are so emotionally upset that it’s nearly impossible to move ahead.  They stall or find reasons to not either get ready to sell or to make the home ready and presentable.  Foreclosure inches closer and closer and the risks, and the stress, go up.  That’s not good either.

One bit of good news now, though, for people considering a short sale is in a recently passed California Senate Bill.  For people with just one loan, there are benefits to waiting until January to close escrow on a short sale, due to a new law in California, SB 931. After January 1st, home owners with just one loan who complete a short sale will not have to worry about a deficiency judgment.  Now that’s a relief!

Are you in trouble with your San Jose, Los Gatos, Saratoga or Campbell area home? I offer a no-cost, no-pressure initial consultation.  I won’t push you to list or sell your home with me or to do it at all.  I may be able to suggest alternatives that haven’t occurred to you, perhaps some that can help you to keep and stay in your home.  I will actively encourage you to do your research and get qualified advice. It’s important to neither drag your heels nor to rush impulsively into a short sale. Gather information, do your research, then chose and act!

Related articles on Silicon Valley short sales:

Silicon Valley Short Sale Listings (on my Live in Los Gatos blog)

Silicon Valley Short Sale Listings: Tracking the Numbers in Los Gatos, Monte Sereno, Saratoga and the Cambrian Park Area of San Jose (also on my Live in Los Gatos blog)

What’s the Ratio of Distressed Sales – Short Sales or Foreclosures – to “Regular Sales” in Santa Clara County?

Underwater & Considering a Short Sale or Loan Modification?

Short Sales Sell But Often Don’t Close: Why?

There are a number of things which are related to the purchase and sale of real estate which require the professional guidance of those other than your Realtor, namely a legal or tax professional.  This sometimes surprises consumers.  Once I was discussing one of these areas with a prospective client and she felt quite frustrated and exclaimed, “you know the answer, you just won’t tell me!”  That was many years ago, but I’ve never forgotten it.  Many Silicon Valley home buyers and home sellers assume that they’ll never need to talk to a tax or legal professional, and if advised to do so, may balk.

So let’s talk about it.

In other states, such as New York, attorneys are very involved in real estate transactions. Here in California, though, that’s not the case most of the time.  We call on CPAs and lawyers when there’s a problem or a question which is beyond the real estate licensee’s scope.  I’ll provide a few examples.

Holding Title: Probably the most frequent question I get that I’m not allowed (or qualified) to answer is about how people should hold title when buying a home.  The purchase agreements we use (both CAR and PRDS) lay it out best and puts it in bold so that consumers don’t miss it:

“THE MANNER OF TAKING TITLE MAY HAVE SIGNIFICANT LEGAL AND TAX CONSEQUENCES. CONSULT AN APPROPRIATE PROFESSIONAL.” (newest revision of the CAR contract, April 2010)

Most title companies have a nifty little chart that summarizes the pros and cons of the various ways in which people can hold title.  But neither the escrow officer nor the real estate agent can tell you what’s best for you.  We know what’s most common, but that doesn’t mean it is best for you and your particular set of circumstances.  So talk to a CPA or talk to a lawyer (or both) if you do your research and are at all unsure of what to choose! (Old Republic Title has a summary of the most common ways to hold title in a downloadable pdf file, which you can access via this link.)

Arbitration: Realtors or other real estate sales people should not tell you whether or not to initial for arbitration.  We can explain it, but on that point we cannot advise.  (I will share that in my experience, virtually everyone does initial for it, so as a practical matter I explain that it will likely be a counter offer issue in a purchase agreement. Again, though, the ramifications of agreeing to arbitration, or not agreeing to it, are a discussion for a legal professional.)

Distressed sales: In addition to these two areas, right now we are seeing many short sale and bank owned (REO) transactions.  The paperwork involved in them is significantly different than in a regular transaction.  Often the bank involved has addenda which nullify many of the “buyer protection” clauses in the purchase agreement, for instance, more so with REO sales than short sales, but significant in both cases.

And that’s only the tip of the iceburg.  It’s not unheard of that with a bank owned sale, the bank will not provide to the buyer signatures and initials on the contract which make it binding – but they want the buyer to go ahead, put the good faith deposit in escrow, proceed with inspections while the purchase agreement may still be voidable! (In other words, the bank may kick the buyer out of contract.)  Because there’s so much increased risk to buyers in purchasing homes in which the bank is the seller (or in some cases needs to approve a short sale), I advise my clients to consult with a good attorney to make sure that they understand what they’re agreeing to and what the actual risk is.

For home owners doing a short sale transaction, even the bank approval letter may be something to run past your attorney as the language used may indicate whether or not you will be open to trouble from the bank later. In my experience, short sale sellers are the most likely to need but not be willing to pursue professional tax & legal advice. Not so long ago I had a client who wouldn’t even make use of low cost or free legal services, insisting instead that he could find everything he needed on the internet.  That is really a mistake!

Transactional Nightmares: Finally, if a transaction is hitting a bad, bumpy stretch in which the other party appears to be in default (not performing), your Realtor may suggest that you consult with a real estate attorney if other avenues don’t get the desired results in a timely manner.  Every once in awhile, there will be a weird and unforeseeable turn that may put the sale on shaky ground.  It may even be that  who must (or can) do what may be unclear.  Realtors don’t often suggest that home buyers & home sellers call an attorney for a consultation, but if they do, take their suggestion seriously.   A good lawyer (or tax professional) can often get you an answer quickly and soon put your mind at ease and help you to establish a game plan, if that’s what’s needed.

In conclusion, if your trusted real estate agent suggests that you seek tax or legal advice from a qualified professional (or any other professional), it’s probably in your best interest to do so.  Your Realtor will not get any kickback or payment for the referral – it is made only for your own best interest.  While there’s a lot of good information to be found online and in blogs, none of it will be tailored to your precise set of circumstances, so it cannot substitute for a confidential conference with a lawyer or CPA.

Something you can count on, when buying a home, is that you will be nervous – at times you will feel very stressed, perhaps even sleepless.  It is an immense move, to buy a home, and a big commitment. In terms of stress, it’s right up there with a new job, marriage, divorce and even death.

What can you do to keep the jitters from getting the best of you? Here are three points to follow

First of all, have a plan (and prioritize). If you have carefully thought out what you want and can afford, then if you actually find it and get into contract, you’re far less likely to be upset!  If you stumble into a home that’s open, fall in love and make a purely emotional decision to write an offer, you’re far more likely to freak out! Make sure that your plan includes doing your financing decisions before you ever go house-hunting.

Second, don’t go it alone, even if you’re buying alone, and have your partner accompany you throughout the homebuying process. Yes, that means joining you when you’re interviewing and hiring your agent and then seeing all the homes which you see.  A sure fire way to get upset and become emotionally undermined is to traipse through and view twenty or thirty homes, choose one, and then show only that one to your friends or relatives. Nine times out of ten, your loved ones will shoot holes in your plans because they won’t have seen all the homes which you rejected – and they won’t appreciate why the one you selected is actually worth buying!  

Third, qualify the advice you’ll accept about your decision to buy (or sell) Silicon Valley real estate. There’s nothing like an uniformed but well intentioned person at work, in your neighborhood, in another state or online to turn a happy homebuyer into a nervous wreck. Sometimes, advice that would be helpful elsewhere doesn’t apply here – please remember that real estate is local!  In other states, often home buyers and home sellers employ a lawyer to review the purchase agreement, but here we only call on attorney if there’s a problem or weird, out-of-the-ordinary situation. Within California, there are some big differences between southern CA and northern CA in terms of where escrow is opened.  There are differences within Santa Clara County as to which purchase agreement form is used. 

If you do these three things, you’re far less likely to have a paralyzing kind of fear overtake you in the middle of your escrow. Yes, you’ll still be nervous (that’s normal), but you won’t get or remain totally freaked out for long in most cases.

Buying & selling a home is usually stressful for consumers, and some circumstances can heighten the anxiety further (being in multiple offers, buying a distressed home, or anything out of the ordinary).  Once you write an offer or receive one on your property, you may feel like a nervous wreck as you navigate the escrow period. In some cases, you may come down with a bad case of buyer’s remorse or seller’s remorse.

We’re In Escrow: Now What?

You will want insights and advice so that you’re sure that you are doing the right thing each step of the way.  Even if you have a great Realtor who thoroughly understands Silicon Valley real estate and is a fantastic communicator, perhaps you want some assurance from an outside source (who’s not being paid for closing the deal) that you really are making good choices in the home sale.

There are a bunch of bad ways to do this but also some good alternatives.

What not to do:

1. Don’t call all of your local Realtor friends whom you didn’t hire and ask for their input.  First, it’s not fair to them as businesspeople that you want their professional input but not for compensation.  Second, they aren’t supposed to meddle and it puts them in an akward position of “implied agency” in which they take on some risk (being your expert upon whose advice they rely) without the benefit of ever getting paid.
2. Beware the well-intentioned advice of non-professionals who may not be up to speed with the current market conditions, construction, your purchase agreement, etc.  Sometimes the “over the cubicle wall” advice can be very, very upsetting as these folks get a homebuyer or home seller freaked out – often over nothing or over a misunderstanding of the situation due to a lack of information.   Most often, this “advice” is from completely unqualified people and will compound problems rather than help to solve them.

How about some good alternatives?

There are a bunch of ways to combat the “in escrow jitters” and to get reassurance that you are on track and making good choices in your home purchase or home sale. (Or to validate that there is a problem which needs addressing.)

Begin by laying the groundwork to prevent problems. Before you ever get into contract, do your research upfront - keep up with your local market conditions by visiting open houses, talking to friends who have recently bought and sold real estate local to you, and reading a variety of good sources, from regular news sites (such as the San Jose Mercury News)  to realty blogs (such as this one or Live in Los Gatos) and real estate related websites & news portals.   (Homesellers, forgive the plug but I also have a book addressing the needs and questions of selling a home in Siicon Valley – I provide it to those who interview me while choosing an agent as my gift: Get The Best Deal When Selling Your Home in Silicon Valley.)    Starting with realistic expectations and understanding of the “lay of the land” are key to keeping reasonably calm in escrow.

Check the market stats:

• Altos Research (shows data from listed homes)
• The Real Estate Report (my Silicon Valley report)

Read a few solid news sources:

• Inman News
• Realty Times
• Deadline News

Research well, then hire, a great Realtor.  Talk with several qualified, competant, experienced, ethical Realtors before choosing one with whom you’ll work.  Hire well: this will be one of the most important decisions you make in homebuying or home selling. If you work with a great agent, your confidence will be boosted and your transaction should go smoother.

Perhaps you’ve been 100% on track, you know the market, understand the contract and have hired a super agent,  but now that you’re in escrow, you’re worried about every turn of events.   The home inspection finds some things.  The appraiser is slow to do the report.  The other party in the transaction is behind with some paperwork….  How worried should you be?  Is it nothing? Or is it the beginning of a great catastrophe?  You find yourself waking up in the middle of the night with heart palpitations over this real estate transaction.

If you find yourself freaking out, you probably need some information to keep that adrenaline in check.

First, talk to your Realtor.  Discuss your concerns and questions.  A lot of times it’s the unknown that gets us upset, so find out what the risks of the particular issue may be.  What is the likely resolution? What is the worst that could happen? Get a sense of the proportion of the problem.

Second, keep notes – sometimes being upset can make it hard to remember things, so you may find yourself asking the same question three times in one week. This is not unusual, but if you write down the answer when you first get it, you can be reminded faster than if you have to wait until you reach your agent.

Be gentle on yourself if you do forget something that’s been explained, and realize that emotions can and do play games with your memory.

If you need to bounce the situation off of other professionals, there are online sites that can help you with that, but realize that these are of limited help since other agents do not have 100% of the information you & your agent have. For instance, in most of California, buyers and sellers of residential real estate tend to use the CAR (California Association of Realtors) purchase agreement (contract).  But in part of the San Francisco Bay Area, especially along the Peninsula and west valley areas of Santa Clara County (such as Los Gatos, Monte Sereno and Saratoga), another form is used much of the time – the PRDS (Peninsula Regional Data Service) contract.  This makes an enormous difference in several aspects of the escrow, such as with repairs done prior to the completion of the sale.  Agents in other parts of the state may not understand the contractual nuances, and consumers may not even realize that while they’re discussing the ramifications of one form, agents online may presume it to be a completely different one. That’s just one area where there could be a misfire of information.

With those caveats explained, three great & interactive real estate resources for consumers (nervous and otherwise) and people interested in buying and selling homes are these:

Cyberhomes
Trulia
Zillow

All three of these sites enable viewers to connect with real estate information, professionals and other consumers, and all are at no cost.  Questions with great detail will usually procure better, more useful responses.  (Example: “I put an offer in on a home but didn’t get it – why did that happen?” is not as helpful to an agent wanting to assist you as “I put an offer in on a home but there were 14 offers and I lost out to an all-cash offer – what can I do differently next time?”)

Finally, if a situation arises that is truly a significant problem, do not be afraid to seek out the help of a good real estate attorney.  Sometimes a brief consultation can bring light to a difficulty – it does not always turn into a giant fee to get strong help.  Again, hire well – don’t just pick a name out of the phone book!

Home buying and home selling is a big deal, and it will entail some concern and stress, but it doesn’t have to be overwhelming.  There will be many decisions to be made along the way, but if you hire a great agent and go into the transaction understanding the general terrain because you are well informed, you will be better equipped to handle the ordinary stress and able to avoid the unnecessary stresses.  If you hit a bad bump in the road and need a little extra help, know that it’s there, too, whether through your Silicon Valley Realtor, online or at the office of a good lawyer.  The best way to combat stress and worry is to be armed with understandable information – and it is available to you!