The Story

I had a client call me the other day… his story was similar to many we have all heard over the last year and a half. He had been trying to sell his investment property for over two years but was very resistant to dropping the price, which he recognized was necessary to get any offer of purchase. His life savings had been depleted trying to keep current on this property and he had reached the end of the line. He was depressed, frustrated and resigned to losing the property and taking a credit “hit”. The bottom line for him was whether he should he “go to the trouble of trying for a short sale” or just “let it go to foreclosure”. He definitely wanted the easier road, which he thought would be a foreclosure. The consequences would be similar between the two . . . . right?

What do Lenders Say?

I flashed back to about two weeks prior when I was teaching a Short Sale and REO Transaction class for a local lender. The Senior Loan Officer had some material to share with us. First, she showed us actual credit reports of clients who had gone through a Short Sale. There was a “Before” and “After’ credit report for the same borrower. The Short Sale basically dropped this borrower’s credit score by one hundred (100) points. The mortgage also showed as “Paid in full but settled for less than was owed.”…. Okay, this was kind of what we would have anticipated and is certainly consistent with the information we have received from the lending institutions over the last year. Then we see the real show stopper. The Loan Officer hands out the new Fannie Mae underwriting guidelines that go into effect May 31, 2008. Guess what? The rules have changed.

REALITY BITES

The reality for my client on the phone becomes painfully clear. My advice: You better find a good agent who is competent and experienced in handling a Short Sale transaction. Under the new Fannie Mae guidelines the effect of a Foreclosure on a borrowers’ credit worthiness is substantial, devastating and decisive. A Short Sale may reduce your clients’ credit score and will stay with them for about a one year or twelve month period of time. For all our clients who have “let it go to foreclosure”, I have some very, very bad news. Effective May 31, 2008, according to the Fannie Mae guidelines, a client who has filed a foreclosure will be “ineligible” for a period of five years. That is FIVE YEARS (5 years) for a foreclosure compared with a one year “ineligible” for a Short Sale. That difference is significant and will have an immediate effect on our business.

Don’t be Surprised

It should be no surprise to us that the lending guidelines would adjust. We should have all seen this coming, right? Certainly the prior estimates of a 2 year credit hit for a Short Sale as compared to a 3 year hit for a Foreclosure were astonishing and somewhat unbelievable, leaving many of us to wonder if the effect of either outcome made no significant difference to our Seller, then why did it matter which outcome they pursued? The implementation of these new guidelines solidifies the rules and changes the desired outcome for many of our Sellers. As a result, I think we will all become experts on the Short Sale transaction.

Here starts a series to help inform you of the real estate changes taking affect July 1^st, 2008 as passed and approved by the Virginia General Assembly and Governor Kaine.  It will be a five part series starting with the changes made to the Property Owners Association Act (POA) and Condominium Act (COA); bill number is HB 516. 

The POA/COA Change 

One of the two corner pieces to this legislation was the creation of the Virginia Common Interest Community Board.  The Board will consist of appointees who will investigate complaints about community association manager who will now have a licensure requirement through DPOR; the only exception to licensure is if the POA/COA doesn’t contract out to management and does not pay a staff to run the association. 

The second largest change to the POA/COA is to the fee structure and delivery of the disclosure packet.  The new law will now permit sellers, or their agents, to request electronic delivery of the disclosure packet; they can also request two additional recipients to receive the electronic packet at no additional charge. 

The NEW Fee Structure 

The POA/COA is no longer allowed to charge fees beyond its declaration of covenants and restrictions or else provided by law.  The limits are not to go beyond: 

$100 for a property inspection 

$150 for two copies of the disclosure packet in hard copy, and 

$125 for two electronic copies 

$50 for an expedite fee 

$25 for an additional hard copy 

$50 for a post-closing fee 

No more than the actual cost of a commercial delivery service for hand delivery; i.e. UPS, FedEx, etc. 

Also, 

For no more than $50, an update, delivered within 10 days of a written request, may be requested if a packet or resale certificate was issued within the previous 12 months. 

Fees are not paid up front but are deferred to the time of closing 

These changes only apply to associations who have hired a management company or have a full-time staff. 

Come back to FAAR Forum to hear about changes to AVM’s, the Wet Settlement Act, listing and leasing agents disclosure, firm ownership, vested rights, and overcrowding enforcement.