Copyright 2012. Anna Domzalski.

Cover image: Julie A. Wenskoski / FreeDigitalPhotos.net.

Table of Contents

Introduction

Chapter 1: Underwater

Chapter 2: What Makes My House a Short Sale?

Chapter 3: Process & Ramification of Foreclosure & Short Sale

Chapter 4: First Things First

Chapter 5: Picking up the Pieces

About Anna Domzalski

Introduction

I will never forget the day a few months ago when I was out knocking on doors in my neighborhood. My goal was to introduce myself to my neighbors and offer any help. 

I came to one house and, when the door was answered, the woman began to laugh. I smiled, introduced myself, and asked her if she had any real estate needs that I could help with. She laughed harder. I smiled and waited, feeling awkward. 

Then, she began to explain. Her and her husband bought their house in 2005 and they paid too much. She lost her job and could not find a new job. So, she had to return to school. Her husband works three jobs to pay the mortgage and she works part-time at a hospital since they will pay for her new nursing degree.  

They cannot sell the house and they do not have the money. They do not want to stay because it is such a burden and now they hate the home. It was then that I realized where the need in our county is.   All around Bucks County, families are struggling in the same way, making the same choices, and feeling the same pain. The goal of this book is to answer questions, provide direction, and to give hope.

This is a very difficult time in your life. I understand this. This book is not designed to give you every detail of a very long process. It is written to get you started and moving in a direction. My hope is that it will help you make the really hard choices that are currently facing your family. Then, with your real estate agent, which I would be happy to be, you can go into all the details and get through the process.   So ask yourself: if I showed up at your door, would you laugh? Do you need real estate help? If so, please turn the page and begin the journey of finding your next step.

Chapter 1

Underwater

Many years ago, a businessman began what grew to be a very profitable business. As the business grew, he hired a young man off the street. The young man was eager to do his best and make the businessman proud. However, his ambition clouded his judgment and he made a very large mistake that amounted to a $100,000 loss -- in the 1930's!

The businessman called him into his office and the young man entered shaking, thinking to himself, “This is it, I am going to be fired.” The businessman asked him to explain what he did wrong. The man explained his mistake and said, “I apologize. I understand that you will now have to fire me. I am very sorry.” The businessman laughed and said, “Fire you? Why? I just spent $100,000 on your education!”

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The economy is a mess. The ways of the past do not work anymore. Education does not guarantee a job, the stock market does not grow your investments, the banks do not protect your money, and the housing market does not go up 3% every year. Yet, 10 years ago, we accepted each of these as facts and were given charts and graphs to prove this was the truth.

Then, the world changed, shifted, stalled, and corrected. We used many terms to explain one thing: the fact that we are screwed. While big banks, big companies, and unions get their bailouts, you -- the small guy -- is sitting around wondering what happened to the years of doing it all right. Well, I cannot tell you that everything is going to be just fine -- because for some of us, it isn’t going to be just fine for a while. What I can tell you is that there is a path out of this mess and I am here to guide you through it.

If you have been living in the United States, you have heard the word “underwater” and know that this situation affections millions of homeowners. However, you may or may not know what underwater means. So, before we get too far into the book, let us take a moment and discuss what it means to be underwater and how a person gets there. When your home is underwater, it means that you paid more for the house than what it is worth today.

To understand this, let me tell you a story. Back in 2006, a young, newlywed couple moved from Seattle, Washington to Yardley, Pennsylvania. They each had well-paying jobs and qualified for a large mortgage. With their new jobs, they could easily

pay the mortgage, go to dinner, and enjoy life. They found a nice real estate agent and started looking for homes.

On their second weekend of searching, they went through a beautiful home. It was perfect and they loved it. They could see where the dining room table would go and how they would arrange the future nursery. Their agent told them to come into the office to make an offer on the house.

Unfortunately, before they got to the office, the agent called to say the house sold. The house sold in three days for the full asking price! Discouraged, they went home, the agent sent more homes, and off they went again.

Two weeks later, they went through another great house and got excited all over again. However, their excitement would not last that long. During the tour, the call came into the agent’s phone: the sellers had accepted an offer and the house was as good as sold.

Back home the young couple went -- sad and depressed. That night, they promised each other that they were not going to allow themselves to lose another house.

On the very next day, a new listing came on the market. They ran through the house, then down to the office, and made an offer. Two other offers were already in, but neither one was accepted yet according to their agent. The agent asked them what they wanted to do. They looked at each other and offered more than asking. A day later, their offer was accepted.

A few months later, they signed the contract for their new house. Dreams of children, family dinners, and a great life helped them swipe the pen across the paper.

Now if the story really ended there, you would think how wonderful a life they had ahead of them. But, we both know it does not. This story is far from over.

You are reading this book because parts of the above story sound just like yours. You are reading because you know the fairy tale did not last in housing and the once fond memory is a now a deep-seated regret. With the swipe of a pen, you made what you feel to be the biggest mistake of you life.

Since that day, five to eight years have passed. In that time, you have watched the news and monitored the housing prices in your neighborhood -- and now you are worried.

Now, it is time to move. Maybe you have children and the house is too small. Maybe you are divorce, suffered through the death of a spouse, or your job transferred you. Whatever it is, you are facing the reality that you have to sell.

If you are lucky, you are just underwater. On the other hand, if you are not as fortunate, your situation will involve a short

sale with the fear of foreclosure. So your question right now is -- how do I know if my situation involves a short

sale or if my home is simply underwater? The truth is, if you have cash to pay off your

mortgage after you sell it at market value and/or you can continue to pay the mortgage without a problem, then you are just underwater.

To help make the point, let us return to our couple. It is seven years later and they still have great jobs. However, they want to move to a bigger home in New Hope, Pennsylvania. They owe $250,000 on their first home, but it is worth only $200,000 today. They have $100,000 in the bank, so they can pay off the loan and still move to their next home. What they could do is take the $200,000 from the sale, subtract the real estate agent fees and expenses of selling, and throw in around $80,000 of their cash to get rid of the original mortgage. Sadly, they will be bringing money to the table to sell the house, but they are better off than most because they have money. For now, let us leave our couple underwater in their house.

If this is you, rest assured you could go on in life just fine. You took a financial hit simply to how many people jumped on the Facebook initial public offering bandwagon. Just like that situation -- we dust ourselves off, learn an expensive lesson, and move on in life.

If you are in this category, I encourage you to learn from this. If you do not have to move right now, try staying a little longer to wait out the market.

If you must move, remember the words of our businessman to his new associate: I just spent $100,000 dollars educating you. Now go do something with that lesson. This time invest better, ask more questions, and move slowly.

Chapter 2

What Makes My House a Short Sale?

If you have turned the page, I am going to assume that option two in the story does not apply to you. This means that you are probably dealing with a short sale. So, the question you may have is what makes my situation a short sale instead of simply being underwater?

To figure this out, let us change the story of the young couple. They still owe $250,000 and their house still only sells for $200,000. They do not have any cash though. Therefore, when they sell, the bank will lose more than $50,000 dollars of the original amount owed. When you sell, you have to pay other expenses such as real estate agent fees so you do not get the total $200,000. Banks do not like to lose “promised money.” Therefore, they are going to ask you for the money and expect you to pay it.

Do you remember signing all those papers at closing? Those papers were a promise by you to pay all $250,000 back -- plus interest! If you do not have it, you will need to prove to the bank that you do not have it and cannot get it in the near future. To do this, you will need to prove that some event in your life has changed which will make it impossible for you to get the cash to make the payments. We call this a “hardship.”

A hardship is an event that happens in your life that causes your circumstances to change. As the word sounds, they are not happy events. Perhaps your marriage fell apart and you filed for divorce. This means you lose half of your combined income.

Another potential hardship would be that your spouse has passed away and you did not have a life insurance plan.

Then again, maybe, like millions of others out there, you lost your job. When this happens, the bank usually will work with you, give you modified payments, and see if you can find a new job.

However, now if you are nine months to a year out from the loss of a job, you probably have eaten through your savings accounts. On top of that, you may not have any job prospects on the horizon and the house now has to go with your family having to downsize just to make it.

Finally, perhaps an accident causes you to have a lifelong disability that changes your job options.

If any of those situations fit you, then you have a legitimate hardship. There might be other circumstances that may qualify as a hardship, but these are the most popular.

Right now, you need to think about what happened in your life. If you cannot afford the mortgage payments, your situation is not changing, and your house is worth less than the mortgage, then you have joined the countless millions of Americans who are underwater and months away from foreclosure.

What is foreclosure you might ask? During the foreclosure process, the bank takes back your house because you are unable to pay the mortgage bills. They do not really care what has happened in your life. Even if you have refinanced, modified the mortgage, and still cannot make the monthly payments, you are headed to foreclosure.

Some of you may have received letters detailing the possibility of foreclosure or you know that you will be getting those letters. If you started missing payments, then it is time for you to make some hard decisions. Will I apply to short sale my home or go to foreclosure? The hard truth is if you do not make the choices now, those choices will be made for you -- and the results will stick around for a lot longer.

Chapter 3

Process & Ramification of Foreclosure & Short Sale

Here are the facts: if you do not make a choice, then life will choose for you. In the case of not paying your mortgage, the bank makes the choices. They are the ones with all the power because -- face it -- they are the true owners of our homes. They hold the mortgage and they hold the house. This means that the day you stop making payments the bank gets their foot in the door. Within 90 days of not making payments, the bank is sitting in your living room telling you what you have to accept for your home. This means that the sooner you take control of your situation the more control you are going to have.

Now, let us get into the heart of the book and the reality that you are facing. So, here is how it goes: if you can claim a hardship (i.e. death, divorce, relocation of more than 50 miles, or disability) and are behind or will be behind on your payments, you can apply for a short sale.

Then follow these steps:

1. Get a lawyer and a real estate agent.

2. Put your house on the market and wait for the offer.

3. When you get an offer at fair market value, you must first choose to accept the offer.

4. Once you have an Agreement of Sale between yourself and the new buyer, you will submit the offer to your lawyers. They will then present it to the bank and begin the negotiation. (Note: This can take a while. You must be patient. Remember, the bank does not want to take a loss. They will want more money).

5. Once the bank approves of the mortgage, you must get the approval of the investor. Just because your loan is held at Wells Fargo does not mean that they own it. Sometimes it is owned by an outside entity and they too must approve of the offer before you can move on. The investor must decide what is in their best interest. They have two choices. They can send you into foreclosure or they can short sale the house. If you go into foreclosure, your house will be auctioned off. It is usually expensive and time-consuming to go to auction. So, if they realize that you are not going to be able to keep the house, they will usually approve the house for a short sale.

6. If it gets approved, you can pack up and move into a rental or home with Mom and Dad. After two years, you can apply for a loan through the Federal Housing Administration (FHA) explaining that your circumstances have changed, you have a job, are remarried, have saved money, and you can begin the process of looking for another home. Isn't America great?

Now, if you do nothing as I said before and you do not make the choice -- the bank will make the choice for you. Here is the process of a foreclosure:

1. When you are late the first month, the bank charges you late fees. If you do not make a payment when month two comes, more late fees are charged. The same goes for month three.

2. You have three months to take action, apply for loan modification, start the short sale process, or beg from family. But, after three months of doing nothing, a letter will come in the mail. This letter is called the Notice of Intent to Foreclose. It is not a nice letter and your life is not going to start getting better when this letter comes. Once this comes in the mail, you are at the beginning of the end.

3. Another month will pass and, if you do nothing, your case will be given to a foreclosure attorney.

4. One month later (this is month 5 with you not making any payments), the attorney will file a complaint with the county court house.

5. You have about one month to respond. If you do not, then a judgment is brought against you. Now, you are screwed because two days later they are going to schedule your sheriff’s sale date.

6. Exactly one month later, a Notice of Sheriff Sale is sent out to all lenders (month 7).

7. By month 8, your house is sold at auction.

8. Two days later, they will begin the process of evicting you -- if you have not left yet.

9. Seven years later, your credit is clean and you can buy a car, a house, and apply for credit.

Doesn’t life suck now? Yeah, you thought your day was bad, but get to month 6 and your life is really crappy. The fact is that the bank gives you about three months to save yourself. If you chose not too, the end is not pretty.

Here are the facts. In a short sale, you can be back on your feet within two years. With a foreclosure, the damage remains on your credit report for SEVEN years. Yes, you read that correctly -- SEVEN! That means for seven years you will not be buying a house or getting a better car -- because your credit is a wreck. Rent-A-Center may not even rent to you!

The thing is you DO NOT want is to foreclose. It is not pretty, it is not cool, and you do not just “get over it.” So, whether or not you want to deal with it -- you are going to have to. If that means you sit down with the bank, then do it. If it means you are going to run three miles per day to deal with the stress, then do it. I do not care how long you cry at the bank or how much you drink before you make the phone call. The thing is that you need to get up and go visit or call the bank -- because by doing so you are saving your life and your future.

Chapter 4

First Things First

So, we have touched on this, but I want to return to it. What do you need to do first? You need to call the bank or visit the bank! If you do this, you will find out two things. First, you are not the first person that this happened to in your town or your neighborhood (for some of you, you are not even the first on your own street).

Secondly, the bank can help you. It is in their best interest for you not to go into foreclosure. For example, they can offer you a loan modification. This means that they adjust your monthly payment for a period of time to help you get through this hardship in your life or they can even stop your payments for a short period of time to give you time to get back on your feet. This is great news for someone going through a rough time in his or her life.

Even if your circumstances cannot change (disability and death are examples of this possibility), you should still go to the bank and take whatever option they give you. However, you will also need to call a real estate agent. This is not the time to call your neighbor or your second cousin, who at one time did that real estate thing “for fun.”

When you call a real estate agent, you are going to start by explaining your circumstances upfront. You will ask him or her if they are comfortable dealing with a short sale.

Then, have the agent explain to you the process they will take you through. If they cannot do this, then you do not want them. Ask them if they are part of a team, if they have a short sale specialist to work with you, or if are they are short sale specialist themselves.

After you establish their expertise, then invite them out to the house. They will bring their listing presentation with them. You are going to want to make sure you feel comfortable with the agent. If they are pushy, then no matter what they say, you do not want that. This is going to be one of the most difficult times in your life and you are going to want a strong partner that will move you in the right direction, while patiently explaining what is coming and why.

Please DO NOT call only one agent and go with them. You have a lot going on in life and this is not the time to make quick decisions. This is the time in your life where you take deep breaths, talk to many people, read a lot, and think carefully.

When you have done this, then (and only then) you decide. I am not saying do not do anything. I am saying pause and then decide.

Once you have picked a real estate agent, ask for a referral to a lawyer. Again, you are going to want to feel comfortable with your lawyer, but you also want your lawyer to be your bulldog with the bank. You need your lawyer to be able to get the

bank to accept the offer when it comes in. Sometimes, offers are much lower than the bank wants, so you need a lawyer who is going to get it accepted.

You also want them to know how to work with banks. You want to keep the bank moving. Every day that goes by, your life is on hold. Therefore, this lawyer needs to be a professional and keep everyone on task and moving forward.

Once you have those two pieces in place, you need to let the professionals walk you through the process. Whatever money or assets you have, you will want to protect them. For that, I would visit my accountant and make sure that my car and cash are safe, so that when the time comes to rebuild, I will be ready to do so.

Then, it is time to start making plans. Life sucks right now, but it will not forever. I suggest sitting down with an accountant or financial planner to figure out your future. Do you and your spouse both have jobs? What is your current income? What do you need to do to have a retirement, pay for your child’s college education, and pay off debt?

Yes, right now, your life is in shambles, but this is the time in your life that you begin rebuilding your foundation. If you build it strong enough, it will hold your financial future for the rest of your life. Remember: you must protect your future. The market taught us that it shifts and it will probably shift again. For better or worse, you need a foundation that can stand up to the test.

So, let us get into some tough details. In order for you to be approved for the short sale, you are going to need to start by preparing a financial package. The package is important because it provides a complete picture of your financial situation. The information you provide will allow the bank to understand your financial state based on the exact numbers and figures. This package is incredibly important.

Here’s a hint: you do not want to look like you are doing well! If you lost your job, make sure this is depicted. Do not lie; just show the facts about what is happening in your life. This package is going to be submitted to the bank that is carrying the mortgage. Most banks have their own guidelines, but request very similar documents. So, most likely, you will need to be prepared to hand over the following:

1. Letter of Authorization, which lets your lawyer and agent talk with the bank.

2. HUD-1 or preliminary net sheet (this can come from the lender or investor).

3. Complete Financial Statement

4. Your hardship letter (you want people to cry)

5. Your tax returns for the last 2 years

6. Your W-2s for the last 2 years

7. Recent payroll stubs

8. Bank statements for the last 2 months

9. A comparative market analysis for your home (your real estate agent will do this)

You must have all the above by the time you have an accepted offer. The bank is not going to consider the offer or look at your options if you cannot provide your tax returns. So, make sure you are prepared!

Now let us talk in detail about the timeline after you have accepted an offer. It is important to remember that just because you accepted the offer and are ready to move on, the bank might not feel the same way. It is now the bank’s decision whether or not your offer will be acceptable. This is when the time comes to have a strong lawyer and/or agent on your team. They need to make the case for you and for the offer. Otherwise, the bank may decide to hold out for more or to deny a short sale all together!

Timeline

1. Bank acknowledges receipt of the file. This can take 10 days to a month. Make sure to call for your agent.

2. The bank assigns a negotiator. This can take another 30 to 60 days (1 to 2 months).

3. A Broker Price Opinion, or BPO, is ordered. A BPO is an opinion on the value of the home and is very similar to an appraisal. This is where everything can go wrong. If the offer and the BPO are different, you can be out of luck with the sale and possibly be denied short sale status. Also, the bank does not have to share its results. You may just get a flat out “NO.”

4. If you move past the BPO, a second negotiator may be assigned. This can take up to another month.

5. Then the file is sent for review. This can take two weeks to one month. Do you see a pattern yet?

6. At this point, the bank may request an Arm’s Length Affidavit and issue an approval letter.

7. You may be home free (no pun intended) and ready to sell -- or your buyer may decide to walk because of frustration, boredom, or another home. If that happens, you have to start all over again.

This can take 2 to 3 months on the short end or up to a year on the long end. Not every buyer has that kind of time to wait around!

Now the last part of business we need to discuss is the worst-case scenario. You do everything the way you are supposed to, or at least think you do.

Then, after two months of review, the bank denies your loan. Great. Now what? Well, let us start by looking at the reasons for the denial and then making sure we protect ourselves before we begin the process.

Reasons for Denial

1. Incomplete paperwork. I told you. Fill out all of it, check it, and then double check it! This is a stupid reason to be denied. Do not let it happen to you.

2. Unsupported financials. Again your paper work must support your claim. You cannot say – “I don’t have any money” -- and then show positive cash flow.

3. False Home Value. We talked about this. The BPO may come back higher and they may not even tell you why.

4. Not an Arm’s Length Transaction. Do not sell to your mom, dad, cousin, or kid.

5. You file for bankruptcy. Let us try not to do this because, if you do, your home will be foreclosed upon. Done deal.

6. Additional Liens/2nd Mortgages that do not go away

7. The buyer wants repairs. No deal.

8. Lying. They do not forgive or forget.

9. Buyer does not look like they can close the deal.

10. Crappy agent. Yes using your friend does not always help.

11. Bad behavior. You, your lawyer, and your agent are not allowed to yell, curse, or threaten the bank. They do not like this. Just do not do it.

So if you are denied, ask yourself: was it your fault, the bank’s misunderstanding, or your agent’s fault? Since this is a long and stressful process, I encourage you to make sure you have a strong support team that will keep you from making these mistakes and losing more time in life to pick up the pieces.

Chapter 5

Picking up the Pieces

I know you think your life sucks right now – and you would be right. I could tell you that things could be worse. But, let us be honest, that will not help you feel better. So, instead, I am going to tell you another true story:

There was a young woman who married a prince. Yes, I mean a real prince. She thought her dream life had started. All of her friends were jealous. They all wanted to be her.

Yet, she had a very unhappy marriage and, eventually, she found the courage to leave the prince and move back home with her family.

Of course, everyone whispered behind her back and believed that she was at her lowest point in life. While living at home, she felt the need to do something with her life. So, she began making clothes. Her clothes became extremely popular and soon she became famous and started traveling the world and selling her clothes internationally.

During one interview, a reporter asked her about her past marriage and she said, “Back then, everyone thought I was on top, but I was really on the bottom. It was when I moved back home and began picking up the pieces that I was really on top in life.”

You may be worried about what your friends, family, and neighbors think about your situation. You are probably right – they are talking about you. Some of them may be happy to see your pain and others not so much. But, always remember that when you think you are at the bottom in life, you can turn it into your mountaintop. You can do this if you chose to make some choices and deal with the life that you have. I encourage you to make some tough choices today, so that tomorrow you can start climbing back up your mountaintop.

Thank you for reading this book and be sure to share it with you friends who are in trouble.

Best wishes,

Anna Domzalski

About Anna Domzalski

Anna Domzalski is a Realtor with Keller Williams’ John McClintock Team in Langhorne, PA. Anna’s mission is to help buyers, sellers, and renters in the Bucks County, PA area. With Seller’s Guide to Short Sales & Foreclosures in Bucks County, PA, Anna showcases her expertise in assisting sellers with the difficult process of selling homes underwater.

Prior to her real estate career, Anna worked as an inner city schoolteacher in Philadelphia, PA and also as an auditor with a top accounting firm. She holds a Masters in Elementary Education from Drexel University and a B.S. from Messiah College.

Anna lives in Newtown, PA with her husband, David, and pug.

To reach Anna, call her at 215-757-6100 x342 or 717-858-2075. You can also email her at annadomzalski@kw.com and visit her at http://RealEstateInBucks.com and http://Blog.NewtownGrantRealEstate.com.