These answers are just for general information .Do not use them to make decisions regarding the buying or selling of a property. It is advisable to consult with a real estate agent, attorney, financial/tax advisor, or other professionals so as to properly assess the risks of the specific situation

1. What is an REO?
   REO is an acronym for Real Estate Owned. It pertains to a property which has gone through foreclosure, has gone to auction without any acceptable bids and has reverted back to the bank.

2. What does the bank do with the property?
   The REO property becomes an asset of the bank. Depending on the amount of their inventory and other considerations, the bank assigns the disposition of this asset to a third party company. The third party company then hires a REO real estate agent in the local area of the home to list, manage and sell the home.

3. What are some tips in buying a bank owned property?
   Keep in mind that neither the bank nor the listing agent may have much knowledge about the home. Thus you need to find out as much as you can about the property. Have your agent check the property history; talk to the neighbors; do extensive inspections. In general find out as much as you can.

4. Will the banks do repairs found on inspection?
   The bank is likely incurring a significant loss on the property. They want to sell the home "as is" meaning absolutely no repairs. Asking for repairs will probably fall on deaf ears and delay the process. If there are comparable competing offers, yours will be rejected or ignored. However if you believe that repairs are necessary to make the deal work for you and are willing to risk losing the property, negotiate the important ones. If there is a significant structural or environmental issue the bank may have to agree to these repairs in order meet federal loan requirements.
   Nonetheless insure that an inspection contingency period is included with your offer.

5. Who pays for the typical seller closing fees?
   In this case most of them may be paid for the by the buyer. But this is something you should negotiate with the bank.

6. Who pays for inspections?
   Once again it is unlikely that a bank will pay for any inspections.

7. What is important in the offer?
   Here are some factors important to the bank:
   • The price.
   • A strong, serious buyer.
   • A good earnest money deposit, 1%-3%.
   • Good credit history.
   • Preapproval letter.
   • Quick closing.
   • Clean offer- as few obstacles as possible, i.e. repair requests, allowances. etc.
   • Use of the bank's preferred escrow and title companies.
   • Complete and correct paperwork.
8. Do I have to use the selling bank as the lender in the transaction?
   No. They may ask you to fill out a loan application so they may prequalify you to their standards. You are not obligated to get the loan from the selling bank. However it may facilitate the process.

9. What should I do if they reject my offer and won't budge or do any further negotiation?
   Unless you must have that particular home, wait 30 days or so and resubmit your offer. They may be more flexible if the home sits on the market. Otherwise you will have to accept their conditions.

10. Who is responsible to remove any tax liens, homeowner dues liens, etc from the title?
    The bank.

FAQ: Short Sales

These answers are just for general information. Do not use them to make decisions regarding the buying or selling of a property. It is advisable to consult with a real estate agent, attorney, financial/tax advisor or other professionals prior to engaging in a short sale so as to properly assess the risks of your specific situation.

General:

1. What is a short sale?
   A short sale means the seller's lender is accepting less than the amount of the mortgage the seller owes to the bank. The property may be encumbered by more than one loan. If so all lenders must agree to accept a short sale.
   Just because a property is listed as a short sale does not mean the lender will accept your offer, even if the seller accepts it.

2. How long does a short sale take?
   It takes time, patience and persistence. The time frame will vary from lender to lender but at a minimum it will take 8 weeks (very optimistic) from the time a completed short sale package and offer are sent to the lender. However it may take as much as 6 months.
   Here are some of the steps in the process
   • Offer and short sale package are submitted- this starts the process.
   • Bank acknowledges receipt of the above.
   • Bank orders a BPO or appraisal…possibly two.
   • File is reviewed.
   • Negotiator is assigned.
   • A level two negotiator may be assigned depending on the individual bank procedures and/or the size of the loss.
   • File is approved or rejected -- 60 to 180 days.
   Many banks are now requiring that the paperwork be submitted electronically through a platform such as Equator. This will speed up the process if the listing agent is proficient in submitting offers through Equator and the use of this platform becomes more common.

3. What is a BPO?
   A Broker Price Opinion is an analysis done by a qualified real estate professional which renders an independent opinion as to the value of the property. The bank pays for the BPO.

4. Who has to agree to the sale price?
   The seller and the lender(s)

5. Why would a bank agree to a short sale?
   A bank will lose less on a short sale than a foreclosure. The costs of a foreclosure are significant and the foreclosure may take longer and yield a lower price than a short sale.

6. What is the first step in buying or selling a short sale property

   Call Russell Abbruzza at 425.466.1286.

1. What paperwork is necessary to submit to the bank?
   At a minimum a short sale package consists of the following:
   • Authorization to release financial information.
   • Sellers' hardship letter.
   • Tax returns- generally 2 years.
   • W-2s- generally 2 months.
   • Payroll stubs- last two.
   • Financial statement.
   • Bank statements- last 2 months.
   • Each lender will have its own requirements.

2. Why does the bank want so much information?
   The lender wants to make sure that a borrower is truly having financial problems. If the borrower has liquid assets the lender will want the borrower to use them to help limit their (lender) loss. They are accepting a loss on the investment and want to insure that the information is correct and the situation warrants agreeing to the short sale.

3. Will the bank agree to a short sale simply because my home is worth less than I owe?
   NO! There must be a hardship and an inability to bring money to closing. Just because your home is under water and there is no financial hardship, a bank will not agree to a short sale. It is a hardship situation and not a remedy for an investment which has simply declined in value.

4. What will happen if the short sale package is incomplete?
   The bank will not grant a sale. An incomplete package or incorrect information will lead to a delay in the process.

5. Is it true that a short sale package may have to be submitted more than once?
   Yes! Even if the package is complete and all instructions followed completely, the bank may misplace (lose) part or all of the paperwork. They are overwhelmed with paperwork so be patient but persistent.

6. Are there tax implications as a result of a short sale?
   The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence…however there are qualifications and exclusions, so check with your accountant and/or attorney. Here is a link, http://www.irs.gov/individuals/article, with more information.

7. Will I owe the bank money after the sale?
   According to Washington Association of REALTORS Attorney, Annie Fitzsimmons:
   "In a short sale scenario, debtor and creditor enter a negotiated agreement where debtor conveys the property to a third party buyer and creditor releases some or all of the debt secured by the deed of trust so that the third party buyer can take clear title to the property. The released debt may or may not remain an ongoing liability for debtor, again, depending on the negotiated agreement between debtor and creditor. If the property was encumbered with multiple liens or deeds of trust, the holders of all of the liens and deeds of trust must agree to release whatever portion of their encumbrance will not be paid by the sale of the property to a third party and may or may not have the ability to pursue the debtor based on their short sale agreement with debtor. Again, any obligation remaining from debtor to creditor is the resulted of agreement and not a deficiency judgment."

   Thus there may be a remaining financial obligation to the lender, especially if there is more than one. Insure that as part of your agreement with the bank(s) that it will not pursue a deficiency for any or all of the short sale amount. In some cases it may be necessary to agree to a promissory note to the lender for a portion of the deficiency to be paid over time. Be aware that any document or clause that is or sounds like a "reaffirmation agreement" is one that will probably obligate you financially to the lender.

   *My recommendation is to seek legal council to understand what financial obligation, if, any may remain to the lenders.

8. If I may still owe the bank money, why should I try a short sale?
   It is a totally individual decision. You may be able to negotiate a release from a deficiency from a lender (especially if there is only one) and it prevents the potential embarrassment of a foreclosure. Also it will impact your credit score less and for a shorter period of time than a foreclosure.

1. Why would a bank reject an offer?
   There are several reasons a bank may not accept an offer; some of the most common are:
   • The price accepted by the seller is too low.
   • There may be multiple offers and the bank selected another buyer.
   • You may not meet their credit qualifications.
   • Your offer may have insufficient earnest money.
   • The purchase and sale agreement is not complete.
   • You do not have at least a loan preapproval (not loan prequalification) letter.
   • The listing agent has not submitted a complete short sale package.
   • There may be more than one lien holder and they cannot agree.
   • The seller may not qualify for a short sale.

2. What is a third party negotiator?
   The seller's agent may contract a third party to handle all communication and negotiation with the bank.

3. Is there a fee for the third party negotiator?
   The negotiator will charge a fee which may be paid by the bank (banks are becoming much more stringent and many just will not pay any fee) or the try to pass the fee onto the buyer. Make sure you understand if you are agreeing to a fee, how much it is and if it is in your interest to do so. If you are willing to pay the fee, do not hesitate to have your agent negotiate the amount.

4. Questions for the listing (Short Sale) agent:
   • Has the bank received the seller's complete short sale package?
   • Has the bank approved a short sale in writing?
   • Has the bank approved a sale price?
   • Will the seller accept all the conditions required by the bank?
   • Are there additional lien holders?
   • Will the additional lien holders agree to a short sale and if so under what circumstances?
   • Does the home have a foreclosure auction sale (trustee sale) date?
   • Has a BPO been done on the property?
   • Have any other offers been rejected? If so why? Are there currently any other offers?
   • Are there any inspection reports?
   • How long will the bank take to accept/reject/counter the offer?

   One final tip is to be aware of market conditions. What is the percentage of short sales and REO properties in the area? A thorough knowledge of market activity and composition will help you formulate your offer. If the market is slow and has many distressed properties, you may have leverage for some repairs or allowances.

5. How much earnest money should I put down?
   It is important to show the bank that you are a serious buyer. A strong earnest money deposit of 1.5%-3% of the sale price is my recommendation. It is a definite factor in the bank's consideration of your offer. The bank may require having the money put into a trust account or escrow account. So keep in mind this money may be tied up for months.

6. Once the bank approves my offer how long will I have to close the transaction?
   After taking months for the bank to decide on your offer, once approved you may on have 2-4 weeks to close the deal. So be ready to go. Have your financing (preapproval letter) in place and your inspections, neighborhood review and all other due diligence completed.

7. May I do an inspection on the property?
   In all likelihood you may do inspections but they will mostly just be for informational purposes. The bank will want to sell the property "as is" and will not do any repairs unless required to meet federal loan requirements or solve environmental issues. You are getting a good deal on the property and repairs simply become part of the total cost. Keep in mind that the seller is in a difficult financial situation and may have let the property deteriorate. If there are significant repairs you may want to get estimates so you may better understand your financial commitment.

8. Should I wait until I get bank approval to do the inspection(s)?
   There are different opinions on this question. One is to save the money and wait until you get bank approval. The belief is that the bank will give you enough time to close to get it done. Another is to do the inspection to see if you even want to make an offer and obligate yourself for months waiting for the bank's response on a property that may have too many repairs or problems. The bank may only you give you a couple of weeks to close the deal regardless of what is said upfront and you risk losing the home. It's a decision that is specific to your needs and the condition of the home.

9. What is a "good deal" on the property?
   It all depends on the location, neighborhood, condition of the property, size of the loan and the motivation of the bank to dispose of the property. Banks want an offer reasonably close to market value likely 5-15% below market. Offers which are not within 15% may just be rejected or worse sit in their files for a long period of time without any response.