Calculating Income for a Short Sale is There a Dual Standard?

December 23rd was the frustrating end to a five-month attempt to complete a short sale.  We listed the property in July and executed a contract in early August.  While we worked the package with both lenders, our first buyer walked.  We quickly found a new buyer who was more than willing to wait for us to get this done.

Calculating Income for a Short Sale is There a Dual Standard?

Licensed from iStockPhoto

There were two liens with two different banks. The second was fine with $3000. The first (who will remain nameless) was willing to work with us but bounced our file from negotiator to negotiator. Of course, we continued to provide updated documents and various affidavits. We also had to release the home form the bankruptcy so we could move forward.  While slow, we were making progress.

In the final week, things took a turn for the worse.  The negotiator took the last two pay statements we provided and came up with a monthly income that was $1000 over what we had submitted.  One of those two pay statements showed $800 in overtime pay.  The seller is a police officer and had moonlighted at some local football games to make a few extra dollars.

The bank averaged the two pay statements and added the extra income from the football games to arrive at a net monthly pay. I discussed the issue with the negotiator and her supervisor. They declined to reopen the file and it will be sold at a Trustee Sale on January 4th.

Let’s look at their logic. 

The December pay statement with the overtime pay showed YTD gross overtime of $2200.  Clearly overtime was very rare.  An originating lender would have not allowed it to qualify for a mortgage so why should we use it to undo a mortgage?  I argued that $2200 gross was about $1750 take home and if they felt the need to include it, they should divide it by 12 and add the result to the monthly figure.  This would have added $145 to his monthly take home.

The football pay is $195 gross for 10 games or $1950. After taxes, the take-home is about $1500 or $125 a month.

Neither overtime nor the football pay may exist in the future and we would have ignored it on the origination side unless we had a letter from the employer stating that the pay would continue.

I’m normally very supportive of the banks, but in this case they have applied a dual standard to accounting for income.  If they had followed the origination standard they would not have allowed any of the income.  Even if they used the annual figures (converted to monthly), the seller would have been negative cash flowing and they would have approved the Short Sale.

Lose, lose, lose, lose.  The seller has a foreclosure on his credit report, the bank has to foreclose and incur the costs to sell the property (likely for less than the Short Sale offer), the investor takes a greater loss, and the current buyer has wasted 3 months waiting on this to be approved.

This is the kind of thing that winds up in a lawsuit…

Tom Branch, Broker, CDPE, SFR

The Branch Team Selects IDX-Broker for IDX

The Branch Team has selected IDX-Broker to provide IDX search capabilities for our blog and websites.

IDX Broker

IDX is an acronym for Internet Data Exchange. IDX is the policy instituted by the National Association of REALTORS® (NAR) to govern how MLS member participants can display active MLS listing information on their websites.

In simple terms, IDX is the means of extracting the data from a Multiple Listing Service and delivering it to a website for public consumption.

Tom Branch, Broker, CDPE, SFR

Plano TX Townhomes For Lease 8619 Naomi

Plano TX Townhome for Lease

Copyright 2010 - Imaged2Sell

3 Bedrooms | 2.1 Baths | 2-Car Garage | 1961 SF/Tax

Plano TX Townhomes For Lease – Beautiful new construction with stone exterior. Gourmet kitchen with breakfast bar, upgraded cabinets, granite, stainless appliances, and gas cook top. Study with French doors. 8 ft Knotty Alder front door with wrought iron speakeasy. Many designer touches. Enclosed private patio with gas for BBQ. Full service HOA for low maintenance living. Never lived in! 

Current status, pricing, photos, and a virtual tour for this Plano TX Townhome for Lease.

Source: NTREIS

Watters Creek in Allen Texas

It’s been fun to watch urban living migrate to the suburbs. Over the past five years, we’ve seen a number of developments pop-up that offer urban-style living in suburban cities surrounding Dallas.

Watters Creek in Allen Texas

Copyright 2010 - Tom Branch

Watters Creek, located in the southwest corner of US 75 and Bethany Road, is one of the latest urban-style developments in Collin County.

The Watters Creek website reads:

With its vertically dense design, this 52-acre project incorporates a complete mix of uses including a large creekside village green, interactive public art, a variety of retail options, restaurants featuring al fresco dining and water views, and office space and residential lofts.

Gina and I really like the area with its upscale eateries, wine bars, upper-end retail, and Market Street. We stopped into Grimaldi’s Pizzeria the other evening for a couple of Blue Moon’s and a pizza after spending an afternoon listing a property in Allen. Other good places to eat include The Cheesecake Factory, P F Changs, and The Village Burger Bar. 

Currently the area is decorated for the Holidays with extensive lighting and seasonal activities.

Tom Branch, Broker, CDPE, SFR

How Is Your Emergency Fund Holding Up?

Rob Minton recently published the results of a survey he conducted in an article titled, “Survey Results: Average Agent is Headed for Poverty in Retirement.”  While Rob focused on many facets of financial planning, I took note of the results of question number 5 on his survey where he asked agents if the have an emergency fund.

How Is Your Emergency Fund Holding Up?

Licensed from ShutterStock

The results of that question were:

33%   I don’t have an emergency fund
10%   Emergency fund to cover 1 month of living expenses
20%   Emergency fund to cover 3 months of living expenses
37%   Emergency fund to cover 6 months of living expenses

Given the state of the economy, I actually thought the results of this question were better than I expected. Many of the agents I speak to are pulling money from their emergency fund in order to stay in business. It’s not just the new agents, but many of the top producers are feeling the strain of the economy.

I spend quite a bit of time with other small business owners and the general consensus is that many of them are “treading water” just trying to keep their businesses profitable.

I noted that the National Association of REALTORs® is projecting a steady rise in real estate sales over the next few years, but the recovery is going to be slow.

How’s your emergency fund holding up?

Tom Branch, Broker, CDPE, SFR

The Landlord Stopped Paying the Mortgage

As usual, I found myself in a lively discussion this morning. Having published, The Field Guide to Short Sales, I get asked some really tough questions from time-to-time. 

The Landlord Stopped Paying the Mortgage

Licensed from iStockPhoto

Here’s the situation:

A tenant signed a one-year lease using the Texas Association of REALTORS® residential lease.  They took possession of the property and have been paying the rent on-time for the last 13 months.  The lease was not renewed and is continuing on a month-to-month basis.   About a month ago, they started to receive notices in the mail addressed to the landlord from the mortgage company.

Being concerned, they confronted the landlord. He told them he was going to list the property “for sale” with a local broker and that the tenants could stay while he marketed the property.  When he secured a buyer, he would give them the 30 days notice required under the lease.

The tenants eventually figured out that the landlord was in default on his mortgage and was trying to Short Sell the property.  At that point they quit paying the rent. When confronted, they commented, “If the landlord is not paying the mortgage company, we’re not paying the rent.”

My thoughts:

My initial reaction was that the payment of the mortgage by the landlord and the payment of the rent by the tenant are two separate issues.  I reviewed both the Texas Property Code and the Texas Association of REALTORS® residential lease form. There’s nothing that ties the two issues together.

The tenant defaulted on the lease by not paying the rent and is liable for late fees, court costs, and other relief available in the lease.

The landlord has not defaulted on the lease because the property is still available for the tenant’s use.


This is a growing problem as foreclosures continue to climb.

If you are a tenant in this situation, you should seek legal advice before you simply stop paying the rent. State Laws vary and each lease may contain different clauses.

If you are a landlord, you should seek legal advice as well. If the property goes into foreclosure during the lease, you may be in default and liable.

Tom Branch, Broker, CDPE, SFR

Irving TX Homes For Sale 2404 William Brewster

Irving TX Homes For Sale 2404 William Brewster

Copyright 2010 - Imaged2Sell

3 Bedrooms | 2 Baths | 1-Car Garage | 1869 SF/Tax

Irving TX Homes For Sale –  Great potential in this 3-2-1 with carport, two living areas and huge kitchen with great storage. Additional living area could be used as gameroom or formal dining. View this property in an established neighborhood and see how you can make it ‘your own’. 

Current status, pricing, photos, and a virtual tour for this Irving TX Home for Sale.

Source: NTREIS