Category Archives: Honolulu Real Estate

All about Honolulu real estate.

Easy and Simple Marketing Strategies to Sell Your Home Fast

These are tried-and-true strategies that will sell your home fast.

1. The most important strategy is list your property on the Multiple Listing Service (MLS). If you want to list your property on the MLS, you’ll have to use an agent. However, I recently discover a new service for home sellers who want to do for-sale-by-owner. Check out owners.com. You can list your property on your local MLS for a reasonable fee through owners.com who has a license to list your property on the MLS for you.

Why do you want to list on the MLS? Because when a property is listed on MLS. It is automatically listed in other real estate websites as well, such as, Trulia, Zillow, Redfin, Google, etc.

Why is that important? Today, more than 95% of homes buyers find their homes online. Therefore, it is important to have an internet presents to be in front of as many potential buyers as possible. Furthermore, MLS are geared more toward retail home buyers, who are looking for their own homes, and are willing to pay more for properties.

2. Write an appealing listing description. In a MLS listing, there is a small space for agent to write a brief description of the property. You, as a home seller, assume your real estate agent is competent is writing an award-winning and catchy description that will get your property multiple offers in no time, right?

You are so wrong…You’ll be lucky if your real estate agent writes anything at all, let alone writing something appealing.
Whatever your agent is writing make sure they don’t use the following words or phrases in the listing. This list of words and phrases came a 3-year study in Dallas’ market and are found to be associated with lower sales price and longer days of markets.

Avoid these words or phrases:

“motivated sellers” - lower sale price and longer listing period.
“good buy” - lower sale price
“vacant” - lower sale price, assume can offer less. Not need to.
“repairs” - longer time on market and lower sale price. However, “updated” sold for higher price.
“good location” - lower sale price

Instead, focus on using the listing description to draw out emotion and help buyers to visualize living in the property. People buy for emotional reasons and justify with logic later.

3. Including a link to a video tour of your property is the simplest thing that anyone can easily do. Almost everyone has a camera with video recording capacity on their smart phone. So there is almost no reason to NOT to do one. A video tour is a great opportunity to showcase the best features of the property. Remember, your listing agent is not necessarily the one who shows your property. it’s usually the buyer’s agent who shows the property, and very likely he/she is showing the buyer another 3-4 properties too. So your potential home buyers will not know all the cool features of your property.

Remember, 95% of home buyers search for their homes on the internet, a video tour will give them a very good reason to call their agent to schedule a showing at your property.

4. Price it right at the start to avoid property sitting on market for too long. When you see a property with a days on market greater than a month, the number one reason is always price.

One of the thing I see frequently on the MLS is the astronomical asking price. This intimidates many potential buyers because real estate prices are already high. Most logic behind listing high is “I’ll start high and see if anyone would buy. If not, I’ll drop the price”. And real estate agent doesn’t mind that logic and, in fact, some promotes it telling seller it’s seller’s market. Really? Or it is because their commission is tied to the sales prices…

When I see sellers start reducing price, I know this is a motivated seller, and will put in a low-ball offer.

Sometimes, home sellers worry that they priced too low and is selling themselves short. No…sales price is determined by supply and demand. If you list at a reasonable price, compared to all those overpriced listing, home buyers feels they’re getting a deal, and you’ll end up with multiple offers, which creates competition. You know how competition makes people wants to win, and likely offer to buy at a price higher than your asking price.

When you list at too high of a sales price, you risk not getting any offer, then your property sits on the market. The longer it sits on the market, the less interest you’ll get from home buyers because they’re concern that something is wrong with the property that’s why it still not sold.

Another reason why listing high to start is a bad move is because when you first list your property on MLS, that listing is distributed to other sites. But when you reduce the price, MLS does not update other sites. And you end up missing many potential buyers because your property will be out of many buyers price range.

Pricing too high not only cause your property to sit on the market for too and ending selling for a lot cheaper, but it also end costing your more considering all the expenses you have to pay on an empty property.

5. Your first offeror (the person who put the offer) is always, always, always your best, assuming this person has the ability to purchase with cash or mortgage. This offer may not be the best offer. First offer is usually lower than what they are willing to pay, or the terms needs to be worked out. The reason why your first offeror is the best is likely because these individuals has been on the market looking for a specific property, and when yours show up on MLS, they spot it, they want it and put an offer right away.

Remember, no matter how good your real estate agent, or he/she is your cousin or neighbor, these people have different motivation than yours as a home seller.

Creative Real Estate Investing

Millionaires Invest in Real Estate

Do you want to invest in real estate but short on cash? Not having to deal with tenants?

Real estate investing does not require lots of your own money. Not only that. You can pay down your 30-year mortgage in less than 10 years, use OPM (other people's money) to invest in real estate AND generate a stream of "passive" income. Income that goes automatically to your bank account without you doing anything or lifting a finger.

Sounds pretty good. I can see you putting on your skeptical thinking hat.

Don't worry. I was in your same position when I first heard of this strategy and was skeptical too. But after I learned what it is, the light bulb in the head just light up.

This is exactly what I've been looking for. I was looking for a way to finance my current mortgage so I can have access to my equity because I realized early on that in a traditional mortgage (the one that you and I have) accumulates equity, which is a good thing. But you can't use that money until you sell your property. That's why some homeowners are "home poor" because most of our money are locked in our homes.

I have always wanted to make some real estate investment, but I don't have the cash available for the down payment. All my cash is tied up in my home equity. And I don't want to take a home equity loan, because that means another loan I have to pay every month.

I started looking into selling my property, which has accumulated quite a bit of value in just 5 years (of course, it is in the highly-sought after Waikiki neighborhood), and purchased another residence with extra units for rental income.

One day while talking to a friend who is in similar situation, she mentioned about "off-set mortgage". Apparently, it is something that has been around for years in Australia and United Kingdom. According to Investopedia, the reason why off-set mortgage is not available in the United States is because of our tax law, which translates to "banks does not reap much profit from off-set mortgage". That's why it be banded by our tax laws.

Investopedia explains the off-set mortgage in a very simple and easy to understand way. You should check it out here.

Then I started asking my real estate broker, who has been in real estate business for over twenty years if he had heard of off-set mortgage. Of course, the answer is no. I asked banks, loan officers, etc. They all gave me a negative answer.

Out of nowhere one day, another friend of mine called and want my opinion about a property she and her husband are contemplating whether to buy or not. And during the conversation, she mentioned some kind of financial education that helps people with their mortgage and it's called "Sweep Strategy". I have no idea whatsoever. But I looked it up anyway per her recommendation.

Voila...the information on the website caught my attention. I attended the introduction presentation, which is totally and purely informative. No pressure or obligation whatsoever to buy anything or sign-up.

After the presentation, I was like "God just answered my prayer". This is exactly what I was looking for.

How funny?

I always say be careful what you ask for, because you always get what you ask for.

Visit www.sweepstrategies.com to learn more. And if you're curious, schedule to attend an introductory class. They have offices in Ward area and Aiea.

Disclaimer: I have no financial ties with the Sweep Strategies other than being one their potential clients and partners. I'm just a purist who loves to spread the joy and any good information that I have to my friends and family. It surely would be nice if you mention my name as the one who refers you to them. They will treat you exceptionally well.

Here are few creative strategies to help kick start your real estate investing career:

Honolulu Homes and Condos Sales Market Stats September 2016

Honolulu Homes Sales Stats September 2016

During September 2016, single-family homes sales were flat compared to September 2015, while condominium sales increased by 6.7 percent compared to September 2015.

The median price paid for single-family homes in September 2016 increased by 2.7 percent from the same month last year to $750,000. The median price for condominiums increased by 4.7 percent from September 2015 to $383,250.

According to the Days on Market indicator, the median days on market for single-family homes and condominiums was 16 and 20, respectively.

"Oahu’s housing resale market in September indicates that there was no slowdown in demand as the summer came to an end,” said Kalama Kim, 2016 Honolulu Board of REALTORS® President.

“While single-family home sales were flat compared to last year, the median days on market of just 16 days show homebuyers are still aggressively seeking opportunities. Another indication that demand is still strong are the pending sales figures, which show increases of nearly nine percent for single-family homes and 14 percent for condominiums, compared to last year. We are concerned about a drop in active listings for both single-family homes and condominiums during September, as more inventory is needed to satisfy the demand for housing, which has been the case for some time."

What is a Home Equity Line of Credit or HELOC?

What is home equity line of credit or HELOC?

If you have used a credit card, you'll easily understand the concept of the home equity line of credit or HELOC. In simple term, a HELOC is a revolving credit, like the credit limit with your credit card. The difference is that a HELOC uses your home's equity as a collateral. Basically, it's a credit card secured with your home's equity.

And what is home equity?

Home equity is the difference between what your home market value and the total home mortgage you owed. For example, your home is now worth $1 million, and you have a home mortgage of $300,000. So in this case, your home equity is $700,000.

Most banks do not let you borrow 100% of your home market value. The most I've seen are 90% and 95%.

How much home equity line of credit can you qualify for?

The qualification is very similar to qualifying for a home loan. You still have to show proof of income, good credit score, appraisal, etc. The general rule to figure out how much you qualify for is 80% of your home equity.

We'll use the same example we used earlier. So your home is worth $1 million in the current market. 80% of that $1 million is $800,000. We then subtract your current outstanding mortgage of $300,000. Therefore, you qualify for up to $500,000 in HELOC, given you meet income and credit score requirements.

What Can You Use a HELOC for?

You’ve probably hear many times radio or TV advertising HELOC to finance your dream vacation, wedding, dream car, dream wedding, etc.

You should see me roll my eyes when these advertising show up…these are the worst way use the money.

First of all, when you borrow money to buy things that do not return money, that’s bad debts. You’re digging a hole for yourself.

A better use of the HELOC is to pay of your bad debts, such as high interest credit card balance, car loans, college loans, etc.

Even though the bank generally does not want you to use the money for real estate investing (because they think any investing is risky), but that’s the way to go.

I purchased my first rental property with a HELOC from my primary residence. And my rental property is making money for me while I’m sleeping, and the equity is of course growing every day like a healthy child.

Some banks may allow you to refinance your existing home mortgage into a HELOC. This is a rare strategy that not many people know of.

You can technically use the HELOC to pay off your mortgage in 5-7 years . I’m serious, no kidding…

Many local banks and federal credit unions offer very enticing introductory rates.

American Savings Bank offers 1% APR first year and 2% APR second year.

Bank of Hawaii offers 1.75% APR for the first 24 months or 2.75% APR for the first 36 months.

Central Pacific Bank offers 1% APR for 1 year OR 1.75% APR for 2 years OR 2.75% for 3 years.

Hawaii State Federal Credit Union offers 0.99% APR for first year OR 1.99% APR for 2 years OR 2.99% APR for 3 years OR 3.99% APR for 4 years OR 4.99% APR for 5 years.

Hawaii USA Federal Credit Union offers 0.75% APR for 1 year OR 1.75% APR for 2 years OR 4.25% APR for 3 years.

HELOC vs HELoan

Hawaii Foreclosure 101

Hawaii Foreclosure Process

What is a Foreclosure?

A foreclosure is a legal process by which a homeowner’s right to the property is terminated, usually due to default. It typically involves a forced sale of the property at public auction with the proceeds applied toward the mortgage debt.

In Hawaii, mortgage lenders may foreclose on deeds of trusts or mortgages in default using either a judicial or non-judicial foreclosure.

In judicial foreclosure or “foreclosure by action”, the mortgage lender files the appropriate documents with the court to rule that the homeowner is in default.

The mortgage lender then delivers the notice of default to the homeowner, or publishes the notice if they have trouble contacting the homeowner.

The homeowner has 20 days to respond. If the homeowner does not respond in 20 days, the court would find the homeowner in default and the mortgage lender can proceed with scheduling the foreclosure sale.

However, the homeowner has 30 days after the notice of default to file a notice of appeal.

A commissioner is usually appointed to sell the property at the public auction, which are usually held at the court house steps. The commissioner publishes the notice of foreclosure sale in the local paper showing the auction dates and open house dates, if any.

Any party may bid at the auction and the winning bidder is required to pay 10 percent of the bid cash or cashier’s check.
Unfortunately, the highest bidder does not automatically get the property. Additional bidding may continue at a confirmation hearing. If the court find the price fair at the confirmation hearing, then the sale is confirmed.

Non-judicial foreclosure or “foreclosure by sale”, does not involve any court action.

The mortgage promissory note usually contain a provision called a “power of sale” clause, which allows the mortgage lender to foreclose on the property upon default to satisfy the unpaid mortgage loan.

In a non-judicial foreclosure, the mortgage lender’s attorney would publish a notice of foreclosure sale once a week for three (3) consecutive weeks in a local newspaper in the county the property is located.

The last publication cannot be less than fourteen (14) days before the sale.

The copy of notice must be posted on the property and mailed or delivered to the homeowner no less than 21 days prior to the foreclosure sale.

The foreclosed property is auctioned off to the highest bidder. The auction maybe rescheduled, which happens frequently. And the notices of sale must be re-sent and re-published.

The homeowner has up to the three (3) days prior to the foreclosure sale to save the default by paying the defaulted debt along with any costs and reasonable attorney’s fee.

Hawaii offers no right of redemption for homeowners once the sale of the property is confirmed. However, homeowners in Hawaii do have up to one (1) year to redeem a tax lien foreclosure.

After the foreclosure sale, a homeowner may still face deficiency judgement if the proceeds from the foreclosure is not enough to pay off the mortgage promissory note IN FULL, meaning the property was sold SHORT.

A foreclosing mortgage lender who completed a non-judicial foreclosure of residential property is prohibited from pursuing a deficiency judgement against the homeowner unless the debt is secured by other collateral.

Read Avoid Foreclosure at All Cost.

Sell Your Home as Rent-to-Own

Rent-to-own homes

Rent-to-own, also known as lease option, is an investing strategy that can be benefit both home buyers and home sellers.
For home sellers, rent-to-own may be the perfect solution to ensure you get top dollar for your home in a buyer’s market. It may even generates some extra income for the seller before the actual sale of the home. The rent-to-own strategy also increases the number of potential buyers for your home to include those who do not qualify for the conventional mortgage from banks.
In a rent-to-own or lease option, the homeowner rents his/her property to a potential buyer (lessee) with the exclusive right to purchase the home within a certain time period, usually 3 years or longer. The homeowner cannot legally sell the property to anyone else during the period defined by the lease option. The homeowner and lessee would negotiate in the beginning of the lease the term of the lease to include the purchase price, option or earnest money, monthly payment in addition to the rent.

Decide if a rent-to-own is for you. Rent-to-own isn't for everybody. If you need all the money from the sale of your home right away, you're better off with a straight sale. In addition, the majority of rent-to-own aren't exercised, so you may have to begin the process of selling your home all over again after the lease terminates.

You might also have to consider if you want to, or aren't able to, keep up with the responsibilities of continuing to own the home. In the a rent-to-own scenario, the homeowner must continue to pay property taxes and insurance and is generally still responsible for major repairs during the lease period.

Do a background and credit check on the applicants. At this point, you have to look at potential buyers as potential tenants, and you don't want to do a rent-to-own with somebody who you wouldn't rent to. Look for someone with good references, a steady source of income, and the ability to pay the rent plus, if applicable, the additional monthly option money.

As far as the applicant's credit history, you probably don't want someone with serious credit trouble, but at the same time you may want to be somewhat lenient. Many buyers who choose rent-to-own do so because they have some blemishes on their credit and want to improve their profile before applying for a loan.

Pre-qualify your lessee. It's a good idea to contact a loan officer or mortgage broker to at least discuss the potential buyer's prospects for obtaining a mortgage at the end of the lease term. There is more uncertainty (and, hopefully, more chance of improvement) the longer the lease term, but both you and the potential buyer can get a realistic idea of whether they'll be able to buy the house.

This step is essential if it's important to you to sell the house at the end of the lease. But ethically, and perhaps legally, it's important regardless of your preference because if you take option money and above-market rent from a tenant who can't possibly buy the house at the end of the lease, you're just ripping the tenant off.

Provide the potential buyer with a seller's disclosure form. The disclosure form lists any known problems with the house. You attest, to the best of your knowledge, to the condition of the house. This form is standard for other purchase transactions but is sometimes left out in a rent-to-own. Make sure you give the buyer this form to help him or her make an informed decision and to protect the integrity of the contract and sale. The buyer should also have an independent home inspection done.

Prepare a lease agreement with option to buy and collect option money. You can get fill-in-the-blank rent-to-own forms online, but you're better off getting them from a local real estate agent or attorney. The contract is sometimes added as an addendum to a standard sales contract. Unless you really know what you're doing, get help with the details of the contract from a real estate attorney, not a or broker.

The most important thing to remember is that you've got to cover not just the money issues but also who is responsible for what types of repairs and other complications that are bound to come up.

◦ Agree on the purchase price of the home, which should be fixed on the lease contract. You'll be obligated to sell at this price, so you want to make sure it's something you can live with. Ideally, the agreed-upon price should be at least at fair market value and maybe slightly more (especially for lease terms of 1 year or more) to compensate for the convenience to the buyer and for the likely appreciation of the property over the term. You and/or the buyer may want to pay for an appraisal to validate the price. Banks and other lenders will only loan against the appraised value, regardless of the price that you agreed on with the buyer.

◦ Determine how much option money to collect. Some states and municipalities have laws specifying a maximum amount of option money that can be taken, but in general the initial option money or option fee can be almost any amount. A typical figure is 2-4% of the purchase price. You will keep this money no matter what. If the lessee decides to buy, the money will be credited toward the down payment or the purchase price, and if the lessee doesn't buy, he or she forfeits the option money to you. Keep in mind that many buyers choose lease options because they can't come up with a big down payment, so don't expect to be able to get a huge amount of initial option money.

◦ Decide how much of the lessee's monthly payment will be credited toward the option. Anywhere from 0-100% of the monthly payments can be credited toward the purchase price, although the amount is sometimes subject to state or local laws. In general, the monthly payment will be calculated at fair rental value plus a set amount that will go toward the purchase price. This, like the initial option money, will either be credited toward the down payment or the purchase price or, if the tenant doesn't buy, will be forfeited to you.

◦ Decide on the term of the lease. Lease options typically run anywhere from 6-24 months. Less than six months usually doesn't make sense for the buyer, and more than 2 years (sometimes more than 1 year) may cause tax or legal complications. Shorter lease terms generally result in sales more than longer terms, simply because there are so many variables over the long term, but the length of the lease should be adequate to ensure that the lessee has time to get his or her financial ducks in a row. Keep in mind that if housing prices appreciate quickly, you may be getting a bad deal on a long lease, since you're obligated to sell at the agreed-upon price. If housing prices decline, however, you may be getting a good deal, but if they've declined significantly, the lessee is unlikely to buy the house. You still get to keep the option money, however.

Get the right home insurance coverage. Since you will no longer be the owner-occupant of the house, you may need to update your homeowners insurance policy to a dwelling policy. Check with your insurance agent to determine what policy is necessary and what coverage you need. Your tenant should also be insured to cover his or her liability and, depending on your state, any gaps in your coverage that may result from the lease option.

Collect monthly payments. Now, all you need to do is collect the payments each month. Keep track of the payments received so you'll have a record when the time comes for the lessee to exercise the option (or, in the the worst-case scenario, when you have to go to court to settle a dispute).

Sell the home. At the end of the lease term, the lessee can exercise the option to purchase your home for the price specified on or before the date specified. The total option money paid (including the initial option money plus any credit from the monthly payments) will go toward the down payment. Thus, the buyer already has equity in the home and should find it easier to qualify for a mortgage.

Read Buy Your Perfect Home with Rent-to-Own.

Homeowners’ Guide to Avoid Foreclosure at All Cost

Short Sale vs Foreclosure

Homeowners facing economic hardships may have a foreclosure looming, but are often too proud or uninformed to do anything about it, until its too late.  Before considering bankruptcy or allowing the bank to foreclose, consider a short sale.  

Unlike a short sale, foreclosures are initiated by lenders only. The lender moves against delinquent borrowers to force the sale of a home, hoping to make good on its initial investment of the mortgage.

Also, unlike most short sales, many foreclosures take place when the homeowner has abandoned the home. If the occupants have not yet left the home, they are evicted by the lender in the foreclosure process.

Once the lender has access to the home, it orders its own appraisal and proceeds with trying to sell the home. Foreclosures do not normally take as long to complete as a short sale, because the lender is concerned with liquidating the asset quickly. Foreclosed homes may also be auctioned off at a "trustee sale," where buyers bid on homes in a public process.

In most circumstances, homeowners who experience foreclosure need to wait a minimum of five years to purchase another home. The foreclosure is kept on a person's credit report for up to seven years.

Although there is no guarantee your lender will agree to a short sale, here is a list of the benefits of participating in a short sale, versus being foreclosed upon. 

Benefits Of A Short Sale Versus Foreclosure

• Homeowner can apply for a short sale even if they're not behind in payments.

• There in ZERO COST to the homeowner in short sale. The lender pays all the selling costs and real estate commission. Meaning the homeowner has nothing to lose!

• The homeowner receives professional guidance from real estate agent when doing a short sale.

• A short sale may postpone the foreclosure action to allow enough time for house to be sold.

• Homeowner may qualify for financial or relocation incentives from the lender, and receive up to $10,000 for relocation from a government program called HAFA which provides an option for homeowners transitioning out of their mortgage.

• A short sale only affects your credit score between 50-70 points vs 200-400 points with foreclosure.

• Homeowner may qualify for another mortgage loan as soon as 2 years, as compared to 7 years with a foreclosure.

• Doing a short sale avoids foreclosure and waives the full deficiency owed by the homeowner. They can now walk away from the property free and clear.

• Possible tax relief from cancellation of any debt income.

• Short sales are not likely to affect jobs that require a security clearance.

• It is easier to recover financially and emotionally from a short sale than a foreclosure.

If you plan to simply pack up, leave and “let the bank have the property”. This is the worst idea ever for the following reasons:

• If you leave the house, you will still owe the balance on the mortgage plus penalties and late fees (which in many cases is tens of thousands of dollars). This means that by law you are responsible for paying off this balance over the next 10 to 20 years for a property you no longer own!

• If you walk away from the house, the bank will still try to recover the money. They can legally do this by garnishing your future wages and investments!

• If you let the property go into foreclosure, your credit score can be affected up to 400 points. This means that it is going to be hard to find somewhere to rent (if they do credit checks). It is going to be hard to get another mortgage for a very long time with a foreclosure on your record. It is also going to be hard to get credit (in general) with a foreclosure on your record.

• Having a foreclosure on your record can also be a hindrance in getting a job, especially ones that require security clearance.

Read What is Short Sale?.

 

Short Sale vs Foreclosure

Invest in Short Sale?

Short Sale Timeline for Buyers

Read What is Short Sale?.

A short sale can be a good deal for a cash buyer or investor. And it can help the seller avoid having a full foreclosure on his or her credit record.

Because in a short sale, the proceeds from the home sale are less than the amount the seller needs to pay off the mortgage debt and the costs of selling, so for this deal to go through, everyone who is owed money must agree to take less -- or possibly no money at all. This is one reason why short sale can be a very complex transaction that move slowly and often falls through.It is a lengthy and paperwork-intensive transaction that may take up to a whole year to process.

If approved for short sale, the buyer or investor negotiates with the homeowner first, then seeks approval on the purchase from the bank. It is important to note that no short sale may occur without the lender’s approval.

Before you rush in, consider the following issues.

1. Know what you are getting into. Buying a short sale is not a do-it-yourself project. Find a real estate professional (even attorney), who understands the short sale process in your state. Having an experienced and knowledgeable real estate agent (or fellow investor) on your side who knows how short sales work will increase the chances of closing the deal without loosing your shirt. Even under the ideal circumstances, short sales can take a long time to close and may require extra effort on the part of the buyer.

2. Be wary of the condition of the property. If the seller is in financial distress, chances are the home may not be well-preserved. The seller also may be reluctant to reveal serious maintenance issues. Proceed carefully and get the property inspected by a knowledgeable person before you commit.

3. Make sure the deal can close. If you've decided to go for it, the first step is to determine the status of the short sale. Below are items that most lenders require from a short seller. If the seller is unable or unwilling to provide this information, the short sale won't close and any buyer is wasting his or her time.

A hardship letter. The seller must explain why he/she cannot keep up with making payments. The sadder the story, the better. A seller who is simply tired of struggling probably won't be approved, but a seller with cancer, no job and an empty bank account may. The most common acceptable reasons are divorce, bankruptcy, loss of job or some kind of emergency.

Proof of income and assets. It is in the best interest of the lender to recover funds from the home owner. If the lender discovers that the home owner has other assets, including retirement funds, they may prefer to liquidate these assets for payment on the mortgage, and denies the short sale. The proof of income and assets must include income tax and bank statements, going back at least two years. Sometimes sellers are unwilling to produce these documents because they conflict with information on the original loan application, which may have been fudged. If that's the case, this deal is unlikely to close.

Comparative market analysis. This document shows that the value of the property has declined, which essentially means the home owner has no equity in the property, and it won't sell anytime soon for the amount owed. The comparative market analysis should include a list of comparable properties on the market and a list of properties that have sold in the past six months or have been on the market in that time frame and are about to close. This analysis is very similar to the Broker Price Opinion, which is less formal but often more informative than a property appraisal. The prices should support the seller's contention that the property is worth no more than the short-sale price.

A list of liens. The home owner must be at least 3 months behind on the mortgage and has been served a lis pendens from the court indicating that the lender intends to foreclose on the property if they do not receive payment in the near future. There may be more than one lender or liens on the property, and all lien holders have to agree to take less -- or possibly no money at all..

If there are first and second mortgage liens, the question becomes: What's the plan to satisfy these lien holders? If there is a third mortgage lien, reaching any deal is very iffy.

Deal killers include child support liens, state tax liens and homeowners association liens. If they exist and there are no obvious solutions, walk away, Thompson says.

Because a short sale generally doesn't cover the whole amount owed or other liens, it can trigger mortgage insurance. If the property is covered by a mortgage insurance policy that doesn't have to pay off until the home has been in foreclosure for 150 days or some similar length of time, chances are the insurer will hold up the sale because it won't want to pay any earlier than necessary and hopes the foreclosure will just disappear. Often the mortgage insurer will simply go silent. Thompson says: No response, no approval.

4. Be realistic. Short sale is a waiting game. This is not your game, if you're in a hurry.
Part of the slow down in short sale is potential buyers’ lowball offers, which are ultimately rejected.

Another factor is the increasing number of government programs aimed at keeping people in their homes. According to the Mortgage Bankers Association, about 50 percent of defaults never go as far as foreclosure. So lenders see short sales as potentially the least attractive option and aren't willing to expedite them.

To avoid getting stuck in an extended process of negotiation, start by negotiating with the seller and the seller's agent that your offer will be the only one presented to the lender. If the lender isn't flooded with offers, it will be more motivated to move forward.

5. Have your cash ready. Once you have a deal, you should have your money ready, preferably cash. If you're getting a loan, you need bank approval in advance.

As with any deals like REOs, short sales, foreclosure, or auctions -- make sure you have money lined up ready to go. Cash is always the best financing option in all these deals.

Search Hawaii Hard Money Lenders.

What is Short Sale?

What is a short sale?

A short sale in real estate is a voluntary process that happens when the bank or lender allows the homeowner to sell the property for less than what is owed on the mortgage loan. The homeowner closes on the real estate property and the property is “sold short”. This can happen prior to the property entering the foreclosure process. The homeowner receives nothing from the sale.

With both a short sale or foreclosure, the homeowner ultimately loses his/or home. A short sale may allow you to avoid foreclosure and walk away with less damage to your credit score.  While a short sale will not show up on the homeowner’s credit report, the mortgage status will. For those in default, it’s a pre-foreclosure that has been redeemed, which is often reported as “Paid in Full for Less Than Agreed. A short sale, however, does not release the homeowner from the remaining loans, such as second or third mortgages, if any.

One benefit to a successful short sale is that some homeowners are now eligible to obtain a new mortgage loan for the purchase of a replacement house.  That is not possible with a foreclosure, which has a typical wait period of a minimum of 3 to 7 years.

Common Reasons That Result in Short Sale

• The home was refinanced at 100% (or greater) than its present fair market value.
• The home requires too many costly repairs to sell, and the market won't support a sufficient price.
• The home was financed with an interest-only loan, and homeowner is now unable to refinance.
• The home is located in a neighborhood or area with distressed economic conditions.
• The home was purchased at the top of the real estate cycle, and a substantial drop in value has occurred.

Read Short Sale vs Foreclosure.

Why Would a Mortgage Lender Agree to a Short Sale?

A short sale is typically faster and less expensive than a foreclosure. Many mortgage lenders would agree to participate in a short sale because the lender will incur a smaller financial loss compared to a foreclosure or continued non-payment.

How To Qualify For a Short Sale and (possibly) Avoid Foreclosure

A Short Sale may seem like an easy way out of a likely foreclosure, but not every homeowner qualifies for it. Even if they do qualify, the homeowner has to find a buyer, preferably a cash buyer, and the bank has to accept the offer.

A homeowner must meet the following requirements in order for the short sale to be considered:

A hardship letter. The seller must explain why he/she cannot keep up with making payments. The sadder the story, the better. A seller who is simply tired of struggling probably won't be approved, but a seller with cancer, no job and an empty bank account may. The most common acceptable reasons are divorce, bankruptcy, loss of job or some kind of emergency.

Proof of income and assets. It is in the best interest of the lender to recover funds from the home owner. If the lender discovers that the home owner has other assets, including retirement funds, they may prefer to liquidate these assets for payment on the mortgage, and denies the short sale. The proof of income and assets must include income tax and bank statements, going back at least two years. Sometimes sellers are unwilling to produce these documents because they conflict with information on the original loan application, which may have been fudged. If that's the case, this deal is unlikely to close.

Comparative market analysis. This document shows that the value of the property has declined, which essentially means the home owner has no equity in the property, and it won't sell anytime soon for the amount owed. The comparative market analysis should include a list of comparable properties on the market and a list of properties that have sold in the past six months or have been on the market in that time frame and are about to close. This analysis is very similar to the Broker Price Opinion, which is less formal but often more informative than a property appraisal. The prices should support the seller's contention that the property is worth no more than the short-sale price.

A list of liens. The home owner must be at least 3 months behind on the mortgage and has been served a lis pendens from the court indicating that the lender intends to foreclose on the property if they do not receive payment in the near future. There may be more than one lender or liens on the property, and all lien holders have to agree to take less -- or possibly no money at all.

A qualified buyer. A short sale is dependent on a quailed buyer making an offer to purchase. If an offer is not received, it will not qualify for shot sale. Even if tall the other criteria are met, it is possible that no one will buy the short sale. It is also dependent on the lender accepting the buyer’s offer. If the lender rejects the offer, a short sale will not take place.

* Since late 2008, the IRS has been releasing the federal tax lien. The IRS is not forgiving the back taxes that homeowners owe. It no longer requires the tax lien to be paid off before the property can be sold. This is making the short sale process a bit easier with one less lien to deal with.

Tax Consequence of a Short Sale

If the mortgage lender agrees to a short sale, the lender have rights to issue the homeowner an IRS-1099 for the shorted difference, due to a provision in the IRS code regarding debt forgiveness.

The Mortgage Forgiveness Debt Relief Act of 2007 allows taxpayers to exclude income from the discharge of debt on their primary residence. The debt must be secured by a principal residence and the total amount of the outstanding obligation may not exceed the original mortgage amount plus the cost of any improvements. Debt up to $2 million may be forgiven tax-free.

If a borrower, who is still living in the home, is able to make an arrangement with a lender that reduces the principal balance of a mortgage, the amount forgiven will not be taxed.

Read Hawaii Foreclosure 101.

Short Sale Process for Homeowners