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?

Today I showed a newer home in San Jose’s Cambrian Park area to some great first time home buyer clients of mine.  The house has a nice location and fine floor plan.  Some elements of the home were really appealing. But unfortunately, the sellers hadn’t made their home “show ready“.  They cut corners.

As we walked through the property, my clients and I noted places where there was neglect.  The items were generally not big, but unfortunately there were many of them.  Had the owners brought in a painter to do minor cosmetic changes (patch and paint), the home could have looked “like new”.  Instead, it was as if the home were full of red flags. Talk about making a bad impression!

My buyers asked me what I thought, if what we saw would scare me off.  No, I told them, they all seemed relatively minor to me,  but I did understand their concern.  One of them explained that “if we see things like this, we believe that the sellers have not taken good care of their home; what else is wrong that we cannot yet see?”

Confident buyers write offers and tend to write good offers.  Nervous buyers who are concerned that there are hidden defects (and therefore hidden costs) either don’t write contracts at all or they write lower offers.

Realtors who list homes with these minor defects or deferred maintenance sometimes have an uphill battle conveying to the home owners why it is so very important to fix up the home and make it look good.  Sellers tend to think “I’ve lived with it, it’s fine” or “everything works, what’s the problem?”  Buyers are cautious and afraid, though.  If they are afraid about your home’s hidden defects,they’ll either pass or write a low offer.

In the case of my showing today, even though the buyers asked me if I’d have been scared off (and I wouldn’t), they were.  One of them said to me, “we had had such hopes for this home!”  They were very disappointed, but didn’t trust the house to be “solid”.

New paint, new carpet, needed repairs and staging can go a long way in making nervous buyers become confident buyers.  Sellers, don’t skimp in the preparation or the repairs!  Think of it like getting ready for a first date: you want to make the right impression!  If your agent tells you to do certain things to make the home sell for top dollar, pay attention.  After all, that’s why you hired your agent to guide you in the first place!

Mary Pope-Handy is an award-winning, top Silicon Valley Realtor and blogger.  She is the co-author of a book, “Get The Best Deal When Selling Your Home in Silicon Valley”.  The book is available on Amazon.com, in select local bookstores, or through Mary, who will provide it as a gift when you meet with her to discuss selling your home (no obligation).

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.