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Saturday, November 19, 2011 - Page updated at 09:30 p.m.

Selling in a time of distress

By Jane Hodges
Special to The Seattle Times

ost real-estate agents picture helping clients sell their homes for a profit, not dangling cash in front of foreclosure squatters as an incentive to move out. They're more likely to picture hiring a stager to consult on paint color rather than dialing a trash-out specialist for dump runs. They might imagine providing comparative market analyses to homeowners so they'll understand local prices, not proffering opinions so bankers can decide whether to remodel a beater home.

Several years into a housing correction, though, agents find themselves specializing in foreclosures — or with homes headed down that path.

Just ask Nelya Calev, a broker with John L. Scott Real Estate in Bellevue. She's closed more than 100 distressed sales in recent years, ranging from a $30,000 condo to a $1 million home, while working with four asset managers that banks use to handle their portfolios of repossessed homes. The managers rate agents on the speed of their work, and only award new listings as agents close deals, Calev says.

"Foreclosures and short sales are pretty much all it's been for me since 2007," she says, noting that she only does about five traditional deals per year at this point. "When I get a regular listing, it's so easy; the buyer and seller can come to agreement quickly."

Or talk to Nova Shank, a Realtor and foreclosure specialist at Keller Williams. Since 2006 he's handled more than 60 short sales, in which sellers owe more on their homes than they can sell. Shank saw the distressed market coming. Almost all of his clients bought during the housing bubble in the mid-2000s, or chose to withdraw equity during those years when their homes values were peaking. As a result, they come to him for help selling their homes at a loss — and, often, grieving in the process.

He's glad he has a psychology background.

"I have to constantly navigate relationship fights and 'self-shame' turmoil," he says. "Sometimes couples decide to get divorced in the middle of the process. It happens at least twice a year."

The occupancy check

With foreclosures, Calev says, as soon as she gets a listing from an asset manager she has to find out if the home is occupied. This work can involve drive-bys at night to determine if the lights are on, a car is in the driveway, or toys are in the yard. If a home is empty, as was the case when she first visited a boarded-up home in West Seattle, she'll often talk to the neighbors.

"Neighbors will tell me everything," she says. "They told me that home was empty and had been vandalized."

When it is the former owner who still lives in the foreclosed home, she leaves a notice encouraging them to contact her within three days to discuss options other than eviction. Typically, this involves an emotional in-office chat where she explains to them that if they clean and vacate the property within a certain time window, they'll be eligible for relocation assistance, called "cash for keys."

Most former owners who've stayed in their homes post-foreclosure bought in 2004 or 2005, meaning they paid housing-boom prices or may have used now-extinct adjustable-rate mortgages (ARMs). Owners who've stayed behind these days are in "strategic default," meaning they could pay their mortgage, but chose not to, often because of home-value drops.

"The situation in these homes has changed in the past 18 months," Calev says. "I hear things like 'I'm upside down and I don't want to pay anymore.' "

In October, Washington ranked 28th in the nation, with one in every 1,049 households receiving some kind of foreclosure notice, according to the foreclosure listing firm RealtyTrac. The ratio was one in 622 in Snohomish County, one in 627 in Pierce County and one in 1,168 in King County.

In Burien, for instance, she encountered a family who'd paid $450,000 for a home walk away when its value had fallen to $280,000.

These homeowners typically can afford to keep paying their mortgage, but can't modify their loans because of their lost equity or ability to pay the fees associated with refinancing.

However, this past week the government's Home Affordable Refinance Program (HARP) announced new guidelines designed to let more underwater borrowers refinance or modify their mortgages. Under the new guidelines, people who owe as much as 125 to 130 percent of their home's value may be eligible to modify their mortgages.

On the market

Former owners who accept the relocation assistance must empty and leave the place in "broom-swept" condition by a specified date. Often Calev says she has to help owners finish packing their moving trucks so they make their deadline. Then she provides them with their check, and the locksmith re-keys the doors.

For agents working with distressed property, all this people-and-exit work has to happen before the listing can really head to market. There's another step at this point: Calev presents the bank's asset manager with price opinions on what properties fetch "as is" (with light cleanup, or as major fixers) versus if remodeled, which requires her to get bids on repairs. Typically, lenders only want to do the minimum amount of work — a few thousand dollars for trash removal, lawn repair, and other cosmetic fixes — and sell the home "as is."

But sometimes, they surprise her: This month, on advice of her and her contractors, one bank-owned home is undergoing a $35,000 renovation over a three-week period. The work involves drywall repair, a new kitchen, new flooring and new bathrooms.

If sold "as is," it could fetch $170,000, Calev says. If remodeled, the lender could fetch $240,000 — and also bring the home up to standards required for buyers using FHA loans, which come with strict appraisal and inspection criteria.

But the market won't stay this way forever, Calev hopes. Lately, she's noticed that some of the former owners whose foreclosures she'll sell nonetheless ask her about their future homebuying prospects.

"They do ask me, 'How long do you think my credit score will be affected by this?" she says. "I know they're not going to have a bad credit score for the rest of their life. So I give them my card."

Jane Hodges is the Seattle-based author of "Rent Vs. Own: A Real Estate Reality Check for Navigating Booms, Busts, and Bad Advice."

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