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Shortsales Part 1 with Steve Westmark

by Steve Westmark

STEVE:  Hi.  Thanks again for watching my video blog this week.  This week, I want to talk to you a little bit about what short sales are.  Those that are in the marketplace probably hear about it and read about it, but they go, “What is a short sale and what do I do when I’m upside down?”  Well, basically, a short sale is a homeowner that’s short on the amount that he’s owed on the property.  So for instance, if you purchase the home for $200,000 in 2006 and got $190,000 mortgage, we’ve seen a decline in values in the real estate market so that it has gone below the 190,000 mark.


And many owners cannot afford their property.  And we’ll talk about how you apply to see whether or not you can have a short sale.  Well, what are the choices that you have when you’re upside down on a property, where you owe more against the property than you have?  And there are several things that you can do.  Number one, you could have a reinstatement of your property where you’re having problems on it and behind in payments and you can go to your lender and ask for a reinstatement.


 The second thing that you can do is you can ask for a forbearance or a repayment plan where you say to your lender, “I’ve been struggling.  I need some help.  Can we come up with a new repayment schedule or some type of forbearance?”  A big thing that many people have heard about is a loan modification.  A loan modification is where you go in to your lender and you say, “Well, I have this adjustable rate mortgage.  It’s coming due with a new interest rate.  I can’t afford the payment that it’s coming due with.  And my property values have dropped.  What can we do to modify this loan so I continue to stay in the house?”


The next one is—and some people have done—they just go out and say, “Well, I’ll just rent my property until the marketplace comes back.”  So the rental of your property.  You can do that and I’ve had some customers and clients that have chosen to rent their property and then go buy their next property.  Another one is called a deed in lieu of foreclosure.  That’s where you go to your lender and you’d say, “Well, I know you’re trying to foreclose on me because I’m behind on my payments, but I’m just going to give you a deed and I’m going to give you the deed in lieu of foreclosure because I’d rather not go through the whole foreclosure process.


The next one, which is an ugly one, is bankruptcy.  And that’s where I would tell you to talk to an attorney about that.  Even dealing with a deed in lieu of foreclosure you would do the same thing.  Another one is to do a refinance where you go in and refinance the mortgage and try to rework that whole process.  The next one is there is a Service Members Civil Relief Act that was put in place by the Congress that you can look at.  And the last thing that people are looking at today is doing what’s called a short sale where they say, “I want to sell my property.  I’m upside down in it.  What do I do?”


In order to do a short sale, there’s basically three things that you have to do to qualify for these, and I’m going to suggest that there would be more of a time where if you had questions about that where you’d come into my office and we’d talk about the specifics of it.  But the three things are: One is a financial hardship.  That your hardship has happened.  Maybe you’ve lost a job.  Maybe you’ve had a medical situation or your savings have been declined and the property is upside down.  Or you’ve been transferred and you can no longer live in the home and you’re going to have to move to another state where you cannot continue to hold onto this property.


The second is a monthly income shortfall.  That shortfall means—and many people have seen this where one of their spouses maybe lost a job or maybe had to be re-employed and your employment amount was a lesser amount.  And the third one is insolvency.  Insolvency is where they just see you don’t have enough assets and things to continue to pay on the mortgage.  Now these are all very difficult things.  We’re dealing with these kinds of processes in the marketplace.  My heart goes out to every individual that’s going through this and I feel so bad.  You’ll see as we put up on the screen that I have a website that specifically helps you through reading some of the preliminary information and even a video on there by David Knox [04:33] who does even a greater explanation of the short sale.

 The name of it is  Please go view it.  Thanks for watching it this week.  Next week I’m going to bring in an attorney who’s going to talk more specifically on short sales.  Have a great day.  Bye.

STEVE:  Hi, this is Steve Westmark.  Thanks for watching my blog once again this week.  Today, I’m bringing in a specialist in the area of mortgages, Jill Meents from Bell Mortgage, and so welcome, Jill.

JILL:  Thank you, Steve.  Glad to be here.

STEVE:  In this interesting market, many of you have heard the terms Freddie Mac, Ginne Mae, and Fannie Mae, but all of those you happen to have to qualify for mortgages in a different way that are going to be sold in the secondary market.  Today, what I wanted Jill to talk about is what’s called portfolio mortgages.  So Jill, what’s the difference between these government-type mortgages and what you can do with portfolio mortgages and how does that fit in helping people buy homes?

JILL:  You know, Steve, you’re correct.  Fannie Mae, and Freddie Mac, and Ginnie Mae are large loan servicers and they dictate how we underwrite a file.  So the good news about that is we get great pricing and great product through those investors.  But lots of times, we’ll find a special kind of file whereby we have a self-employed file where the borrower is maybe recently self-employed or has a great accountant and isn’t showing much cash on his tax return or maybe we have a unique property where were can’t find comp properties and we’re having some challenges there. 

So we put together a program at Bell whereby we keep the loan in our portfolio and we service it.  Thus the name portfolio lending.  So we can really work outside the box in a lot of underwriting guidelines and a lot of appraisal types and also we can look at kind of some unique credit.  So it’s a great product that we keep in our portfolio.  Thus the name portfolio lending.

STEVE:  So I assume with this, Jill, there may be differences in down payments because like on FHA you can get in with 3% down, but a portfolio product is probably not that.  And are interest rates any different on that or how do they work their product?

JILL:  Well, you’re correct, Steve, in that we have to have at least 20% down.  If we have less down payment, then we need either FHA insurance or private mortgage insurance.  And that’s something that we’re trying to alleviate.  So as long as we can get 20% down and we can do it either with a first mortgage at 80% loan to value or maybe we do a first mortgage up to 90% loan to value and we have a second mortgage step in and pick up the difference.

So there’s different ways of financing them, but yes, they’re considered more risky lending and yes, the lender wants a bit more down payment.

STEVE:  Well, I also know you have a newer product that’s just coming out that has to do with rehabs.  What’s going on there?

JILL:  You know, we do.  We just came out with a great program.  It’s minimum down, so somebody can come in with 5% down on any kind of conventional loan.  And let’s say you have a listing, Steve, for $400,000.  It’s kind of tired.  It needs some remodeling, maybe a new kitchen, maybe a new bathroom, maybe new carpet, that kind of thing.  What we can do is we can take your sales price of 400, we can add the price of the improvements.  Let’s say they’re $50,000.  Get an appraisal for the 450 as if the work were complete. 

We can go ahead and close the loan, have them do the work, and within 30 days after the work is done, then we can do a re-inspection and sell the loan right into the secondary market.  Or we can keep it in our portfolio.  But it’s a great new product to help buyers with not much cash come in with a minimum down payment and be able to finance all their remodeling costs.  It’s just super.  So maybe it could help move some of those tired listings.

STEVE:  Well, thanks for coming in today, Jill, and what’s the best way for them to get a hold of you?

JILL:  Probably my cell phone, Steve, which is 612-867-1979, and thanks for having me onboard.


Pete Boyer shares his insights on Home Remodeling

by Steve Westmark

STEVE:  Hi, this is Steve Westmark.  Thanks for watching my video blog this week.  Well, this week I’ve brought in a great contractor who knows how to do remodeling, and it’s Pete Boyer of Pete Boyer Construction.  Welcome, Pete.

PETE:  Well, hi Steve.  It’s fun to talk about remodeling.

STEVE:  Well, Pete, you’ve done some interesting remodeling through the years.  Tell us one remodeling thing that stands out in your mind through the years.

PETE:  Well, the one that I really remember the most that was really interesting was one I started my career on was a big old house called Goosecap.  It was one of the three original houses built there on the Ward Burton property.  And apparently it was built in 1892 by the Burtons, and the Burtons still owned the property when I remodeled the building.  The house was going to be torn down, but I was able to change property lines to get the house to be saved and actually, the house was written up in the book “Once Upon a Lake.”  And it’s a historic house, a house built in Victorian style 

But it was all rotten, holes in the roof, windows blown out when I bought it in the winter of ’75.  But then I restored it, remodeled it.  I remodeled it three times in the process between then and now.  And different people have bought it and owned it.  One customer was from Boston that lived there.  Anyway, very interesting house, totally remodeled.  Now it’s been added onto, but the people love the location.  They love being near the lake in a historic piece of property.  It was a fun job to have started it and I know a lot of people enjoyed that house.

STEVE:  I know there’s a lot of choices out there when people go to look to remodel a home.  Sometimes I have buyers that come in from out of town, buy a house, and they want to redo it, but then there are people that just live in homes and they just want to do things.  What are the top things that you’re remodeling on properties today?  Is it bathrooms, kitchens?  What are some of the things that people ask you to do as you’re remodeling homes today?

PETE:  Okay, Steve.  A lot of the remodeling we’re asked to do has to do with upgrades for empty nesters, folks that have nice big houses and their family is kind of leaving, gone out.  So they want to get something that’s a little easier to maintain, something that a lot of times is brand new or fixed up or up to date so that they don’t have so much maintenance.  They’d like to go to maybe a smaller house.

So frequently, they’ll work with their realtor.  They’ll find a smaller place in a nice neighborhood, maybe a rambler where they can have single-level living.  And then we’ll just go through the house, make the rooms bigger.  Like we’ll combine a kitchen and a dining room, make it a kitchen and great room area.  We’ll go into the master bedroom for example and take two bedrooms and combine them into a master bedroom suite.  Sometimes they’ll move into the lower levels and make it into a theater room and just kind of take the old things that are kind of outdated and modernize and make them new.

We do a lot of bathroom remodeling, kitchen remodeling because obviously things change and appliances wear out and people want bigger spaces.  So old structures that can be rehabbed into newer spaces is a big part of our business.

STEVE:  I know there’s a lot of people that go out and do some kinds of redecorating or remodeling, but Pete, what makes it different when you’re going in to help somebody remodel a house?

PETE:  Well, Steve, that’s a great question.  Embarking on the remodeling process.  What do you do?  How do you go about it?  I like to look at the structure and the property the customer’s purchased and then find out what the customer’s goals are.  And then I try to think of the most economical ways to get their desires, their wishes, their dreams put into a piece of real estate.  I have a background in architecture and I used to be an architect in my younger years.

My dad was a building contractor.  So the combination of those design and building skills I use to price and design what the customer wants to do and what they need.  And then I usually get a schematic drawing and go back and forth with the customer a couple of times before I start to price out the ideas.  But I usually keep in mind all the time what the customer’s budget is going to be  and that’s of course a really big deal.  The customers though, they drive the program.  They drive the design process and they drive the pricing process.  Always being careful we don’t get out of line with either one. 

So once I get a price in line that looks like it’s going to meet the customer’s needs, then I bid the job competitively with other subcontractors to find out what the real numbers are going to be.  And it’s really great if the customer can kind of know what they want.  Sometimes they pick out scraps out of magazines—pictures and photographs and things that help me know what their design ideas might be.  And then I incorporate those into the building process, incorporate them into the pricing, and then I can direct them towards places that they can make selections at.

Selections for tile and cabinets and countertops and bathroom fixtures—all sorts of things like that.  And then with my design background and my engineering background, I’m able to know how to structure the building and structure the spaces so that they can work and work well and get a real design that really works, that can really be built and can really meet the budget.

STEVE:  Well, Pete, thanks for coming in today, and I appreciate you just sharing all your wisdom.  What’s the best way for people to get a hold of you?

PETE:  Well, we’d love to have a phone call.  And just call Pete Boyer Construction at 952-474-8077, and we’re in Minnetonka and we’d just love to talk to our customers soon and meet them at the office or come over and meet them at the house, wherever they want to be, and see what they want to do, where they want to go.

Shortsales Part 2 with Jeffrey Zweifel and Steve Westmark

by Steve Westmark

STEVE:  Hi, this is Steve Westmark.  Thanks for watching my video blog this week.  Well, this is the second in my series on short sales, and I’ve brought in Jeff Zweifel of his own law firm to talk to us about short sales.  Welcome, Jeff.

JEFF:  Thank you, Steve.

STEVE:  Well, many times I get involved and I talk with clients and find out that they are somebody that would fit into the short sale situation.  And this is where I bring you in, Jeff.  Jeff, what do you do when you’re meeting with a person for the first time and I’ve sent them over to you to talk to them about short sales?

JEFF:  Well, Steve, when you send a client to us, we offer a no-charge initial consultation so that the client can learn about the legal consequences, alternatives, and the mechanics of how a short sale works.  We have about a 45-minute to an hour meeting with the client, and we go over the client’s situation, learn as much as we can, and then advise them on the various legal issues that surround a short sale.

STEVE:  Well, in the short sale both for the real estate agent and for the attorney that’s working on it, it does take extra work that we’re more than willing to do.  But Jeff, there is paperwork that the clients have to help us with in accomplishing that.

JEFF:  Yes, there is Steve.  And basically a short sale is a voluntary process where you’re asking the lender to take less than what you owe and satisfy your debt and release the mortgage.  For that, they’re going to ask for some information about you, the client or the seller.  Basically, they want basic financial information and they want to know why you’re asking for this.  What is your hardship?  What are the circumstances?

STEVE:  I know there’s a lot of things going on out there, and there’s many, many lenders to deal with.  What are the variations that you’ve found as you work through the different lenders with short sales?

JEFF:  Well, Steve, we have seen quite a variation in the lenders and a variation over time.  I’ve been working in the short sale area for approximately three years now, and we’ve seen a great change in the lenders over that period of time.  In general, we’ve seen that most lenders are more willing and more accepting of short sales than we did say two years ago. 

Some of the lenders such as Bank of America that had took a long time to work with and were somewhat difficult have really changed their processes and are now much more short sale friendly.  So by and large, that’s what we’re seeing although there are isolated instances and isolated lenders that are still more difficult than others.

STEVE:  So Jeff, are there any newer developments that are going on in the short sale area that people should be aware of?

JEFF:  Steve, yes, I think there are.  And one of the biggest new developments has been in the last six months we’ve seen a movement in the lenders that some of them are starting to agree to allow short sales to proceed when the borrower or seller doesn’t have a financial hardship.  They’re starting to see non-financial hardships such as job relocation and so forth as a possible reason to complete a short sale.  What that means for the consumer is that there can be a short sale done even when you’re still current on your payments.  You don’t have to be in such significant financial distress as once was the case.

STEVE:  Well, Jeff, thanks for coming in today, and you can tell he’s got a lot of wisdom and knowledge.

JEFF:  Well, thank you Steve, and I appreciate coming in and being able to be a part of your video blog.

STEVE:  Hi.  Thanks again for watching my video blog this week.  I invited in today one of my favorite agents, and I’ve worked with him a couple of decades, and that’s Roger Karjalahti of State Farm Insurance.  Welcome, Roger.

ROGER:  Thank you.  I’m glad to be here.

STEVE:  Well, Roger, when I have a first-time homebuyer or even people transferring in and coming in and meeting with you, what are the things that you need to discuss with the person about what they need to get in an insurance policy for their home?

ROGER:  Well, there’s quite a bit of importance to the insurance policy when you first buy your home.  Of course, you need a binder for closing and that you need to take care of with an insurance agent.  But that insurance agent needs to go over a lot of things with you.  It’s important that you get the right policy for your home.  If you buy the right amount of coverage, the right amount of homeowners, the building itself, your personal property, your liability.  And that’s what you need to talk to an agent about.

STEVE:  Well, in this interesting marketplace we’re in today, we’re finding sometimes homes are selling quite a ways below reproduction costs.  What are you suggesting to people doing in properly insuring their properties in today’s market?

ROGER:  Well, they need to talk to their agent and go over the type of house it is and the size.  It’s real important to figure the costs of rebuilding that home.  Then they have decisions to make.  Because they’re buying it so far under market, they may not want to insure for full reproduction costs or what we call replacement costs.  And there’s some choices.  They can go at a little bit lower amount to save some premium.  But they need to know how that affects their coverage and what happens if they have a big loss.

STEVE:  It’s a big selection just like people having to select me as a real estate agent.  How do people go through a good selection process in finding a good insurance agent to help them in the process?

ROGER:  That’s a good question.  Through the years, what I find most people feel most comfortable with is a referral from a friend or a business associate.  Otherwise, they’re just going from what they’ve heard about an agent.  It’s important to talk to that agent and make sure you’re comfortable working with him or working with his staff.  Most agents today are going to have staff people who are going to help you with most of the mundane questions.  But you want to talk to that agent about how much you should be covering your house for, what type of deductible you should be carrying and making sure you get your proper certificates.

STEVE:  Well, then there’s the other choice of picking the company that you’re going to work with because there’s a lot of insurance companies that are out there.  Why would somebody pick like State Farm over other companies or the independent companies that might be out there?

ROGER:  People often ask me why they should go with State Farm.  Of course, the number one reason is they should go with my office because I’m going to take care of them.  But the other big reason is State Farm’s the largest company in homeowners in the country.  The reason why is they take care of their clients.  They’re there when a claim happens.  They’re there to help you through the claim process to pay the proper amount to get you back into your home, to take care of you while you’re out of your home.  But the big thing is you’ve got an agent you can talk to that’s going to walk you through it, give you as much help as you need.

STEVE:  Well, Roger, thanks for coming in today, and I know you not only do homeowner’s insurance, but you also do other types of insurances.  In finishing up for the last question, what are some of the lines that you also help people with because I know you helped me a lot over the years?

ROGER:  And thank you for your business all these years.  State Farm besides being the largest home insurer in the country is also the largest auto insurer in the country.  They can help you with your auto insurance.  And an auto and home package gives you a discount on both policies.  Besides that, we do businesses, renters, apartment buildings, life insurance, disability insurance.  We can help you with most every insurance policy you need.  Just give us a call.

STEVE:  Hi, this is Steve Westmark.  Thanks so much for watching my video blog this week.  I invited back Al Gelschus from Guaranteed Rate Mortgage to talk to us today about FHA rehab programs.

AL:  Thanks, Steve.  In today’s world where we have a lot of homes that are being listed for sale that had been through foreclosure or other distressed situations, the FHA rehab program is an excellent way to approach a problem where you might have a home that does not have appliances or carpet and still get by with a minimum down payment loan that FHA provides.  But in addition to that, you can get the financing with your one first mortgage to have some of that work done up front.

The FHA Streamline Program allow it to be very effortless in the sense that you don’t need contractors and those kind of folks to assist you with it.  You do need to work with an FHA consultant.  You do need to work with appropriate bids and that kind of thing so you have enough money to make sure you have the project completed.  But it’s an outstanding way of getting your home, getting it fixed up to your standards and then having a good 30-year fixed FHA mortgage with it.

STEVE:  So, Al, give me kind of a short synopsis of an application.  I knew of a house that was in Minnetonka that was stripped of appliances and had some minor problems.  Maybe needed carpet and paint and things like that.  I could buy it for $150,000.  It was probably worth $250,000, but it needed a lot of work.  How does this type of program work that they’re able to get the monies to buy it for $150,000 and yet still be able to get the mortgage?

AL:  What we would do is we’d hire an FHA consultant at a very nominal fee.  Sometimes that consultant can actually do the inspection as well, and you kill two birds with one stone.  Consultant goes out and evaluates the property for FHA acceptability and also looks at the work that you want to have done on the property.  Gives you a list of instructions that you can go out and get bids for.  For instance, on appliances you can pick one of the national vendors and go out and get some quotes on what those appliances might be worth.

 All that information is turned over to the consultant, and the consultant then prepares a write-up.  An appraiser then goes out to the property and appraises the property as is to make sure that you’re paying a fair price for it as listed right now and it has to be completed so that when the work is finished then you’ve actually got the value that you’re looking for.  The loan then is funded after you’ve been approved and you can proceed with the work. You’ve got up to six months to finish the work, but it does have to be done within that time frame.

When you’re finished, you have a nice new home, and it’s been updated according to what you’d like to get done.

STEVE:  Well, Al, this is a great and exceptional program because you’re able to buy some of these distressed properties that are out there from banks for some excellent values, get them fixed up, and do you know of any instances that you’ve seen where people have done this and then seen quite a return at a later date?

AL:  Yes, Steve.  We actually closed on a loan three months ago here in Minnetonka where the buyer purchased the home for $150,000, put $30,000 worth of work into the property, and he has not yet sold it, but it appraised for $225,000.  So he had a significant pickup in equity based on today’s market.  If the market gets better over the next few years, as we all assume that it will, he’ll have an excellent gain on sale.

STEVE:  Well, thanks again for watching this week, and thanks Al for coming in.  It’s a great opportunity in the marketplace today for the bank-owned properties and also a way to make a great return on investment.  And thanks for bringing us this program that can help people make money in real estate.

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The Steve Westmark Team
RE/MAX Advantage Plus
14451 Highway 7 Suite 100
Minnetonka MN 55345
Fax: 952-241-1600