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21 Oct Ep. 22: Lawyer Elizabeth Kayser

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In this episode, Realtors Adam Kruse and Kori Hetzel talk to lawyer Elizabeth Kayser about short sales as a way to save a home owner’s credit when they owe more than their house is worth.

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Adam Kruse, Elizabeth Kayser, & Kori Hetzel

Adam Kruse, Elizabeth Kayser, & Kori Hetzel

  TRANSCRIPTION

Adam-Welcome everybody to The Hermann London Real Estate Group Podcast live from the rooftop of Hermann London in beautiful downtown Maplewood, Missouri. I’m excited about our special guest. I’m excited about our topic. I’m excited to have one of our realtors, Kori Hetzel, in here today to help me interview. We are just excited about real estate in general. We are going to jump right in and I’m going to introduce Elizabeth Kayser with Kayser Law. We have an attorney in the office today so be on your best behavior. If you don’t mind, I know we’ve known each other for a few years but go ahead and introduce yourself.

Elizabeth-My name is Elizabeth Kayser and I’m a real estate attorney. I founded the Kayser Short Sale Law Firm back in 2008 and I’ve had the honor of going to Adam’s office a couple times to give presentations. We specialize in short sale negotiations with banks and their investors and when I say investors I’m not talking about buyers I’m talking about who owns the loan itself like Fannie May, Freddie Mac, FHA, VA, or one of the GSC investors that actually has the note and we negotiate  for them to accept less than the amount due so that we can get the seller out of that bad situation and get them back into life as they know it and protect their credit in those upside down or negative equity properties.

Adam-You just said a lot there.

Kori-Could you give us an overview of what is a short sale?

Elizabeth-I sure can, Kori. As a realtor you may have been in this situation where you become the bearer of bad news. You are at that kitchen table talking to a person that needs to sell their property. They may need to sell for many reasons but you need to tell them that their home isn’t worth as much as they thought it was and it happens to be worth less than what they owe to their bank. Sometimes you get those listings where they already know that and they say they have a problem, they haven’t made payments for 3-4 months, their wife lost her job, or there was a reduction in income. It is called underwater, negative equity, or upside down. Ever since the recession of 2007-2009 there are a lot of terms of art we use to describe the same situation.

Adam-Do they always use the term short sale? A lot of people think it means quick sale.

Elizabeth-It’s the opposite.

Adam-Is there another word that people are using now?

Elizabeth-It’s still short sale. Prior to the recession people did short sales but they didn’t know what to call them. They would it an outlier, one off, a work out, or a settlement with the bank, but because of the recession, the amount of short sales was really accelerated. The banks had to figure out what they were going to do to reduce their losses and sellers needed to figure out what they were going to do to get out of their mortgage situation when they simply don’t get enough proceeds in the sale to pay off their mortgage.  Short sales have become the new normal for delinquent accounts. Banks now look at a short sale as the first option before foreclosure. They prefer it because they lose half the amount. It is the lesser of two evils. Let’s say you owe $300,000 to your lender for your home and you are in a situation where your home is only worth $250,000. If the home owner stops making their payments then the bank has a couple of options. They can take the house back under foreclosure and average losing about 40% of that entire note. In a short sale they are going to lose about 20%.

Adam-You started your company in 2008 when the market crashed and your company has grown since then. How are short sales still a thing? I mean, I know they are because I’m trying to buy a house on short sale, but are they still popular?

Elizabeth-The market has improved but not back to where it was back in 2006 and some areas more than others. Chicago hasn’t recovered hardly at all and they are where St. Louis was 4 years ago. They are being used because of a paradigm shift. When a lender has a delinquent account or they get a call from a homeowner that knows they will miss payments in six months they will look first to a short sale. Finding another buyer for that house and accepting less than the amount due puts more money in their pocket than taking the home back, sitting on it for a year and a half, and sell it on the foreclosure market. While the bank sits on it they have to pay taxes, preservation costs, and hire a law firm to foreclosure. Once they sell it on the REO market they have to discount the property deeply. There are less listings that are negative equity because we have had some recovery in the market but because it is the new normal it is kind of a wash. We are taking our law firm and expanding into Chicago. We are also going into Rockford because they are the 2nd worst in the nation in terms of negative equity.

Adam-Are you in Florida too?

Elizabeth-We are not in Florida but what we have done is provide our short sale negotiation services to a law firm in Florida but we don’t practice law there. We practice in Missouri and Illinois.

Adam-You mentioned that homeowners can call the lender ahead and say they will be in a short sale situation in six months. 3 years ago a bank would say they don’t have time to deal with it and call back later when the payments are missed.

Elizabeth-That could still happen. It all depends on the bank, the investors, and if you are owner occupied. On a lot of our files the banks will listen. If we demonstrate with credible information a lot of times they will start working with us now.

Adam-You have to prove to the bank that you are serious and you can help.

Elizabeth-Sometimes the banks will say they can’t help. I know it sounds counter-intuitive. If you imagine yourself as the banker, they have millions of these loans and for them to react to a phone call it doesn’t make sense. They are very numbers oriented.

Adam-When you get someone approved before they fall behind is it still affecting their credit?

Elizabeth-No. If you can get them approved before missing payments, you can really protect their credit.

Kori-Is there any disadvantage to the buyer?

Elizabeth-The buyer has an advantage where they are getting a property for less than market value. Another advantage is that they are acquiring an occupied property unlike a foreclosure with copper ripped out and graffiti. The neighborhood has more value because the home is occupied. The disadvantage is you don’t know how long it is going to take. The good news is that it typically takes 2-4 months. 2-3 years ago it could have taken more than a year.

Adam-Why does the buyer get even more of a discount when the property is already below market value?

Elizabeth-When the bank takes an offer that loan has been earmarked because it hasn’t been serviced for a few months. Some short sale homes have not been occupied for months. The bank will sell it for less because it is difficult to get market value.

Adam-Like the short sale I am trying to buy now, the people want to be involved in a short sale because they can’t afford the house but they also haven’t been able to afford any of the updates that needed to happen to the house for the next 3 years. That’s even more of a reason for me to get a discount on it.

Elizabeth-That’s exactly right. These banks look at a house that in a perfect world is worth $200,000 but in a distressed situation where it is out-moded and out-dated it is worth less than that original CMA value.

Adam-Have you seen a difference in dealing with a bank versus a credit union?

Elizabeth-It’s actually more difficult with a credit union because they don’t have any kind of recourse. We are mostly dealing with the big 5 which are Wells Fargo, Chase, Bank of America, and U.S. Bank. They have recourse which means they can get their losses from somewhere. If they lose $75,000 on a loan because they had to sell it for less than the amount due, they can recoup it from entities or government sponsored enterprises like FHA, Fannie Mac, and Freddie Mac. Sometimes they can recoup their loss through mortgage insurance companies like PMI. If a bank loses money on a mortgage they can file a claim. Credit Unions don’t have that so they don’t have anywhere to take those loses. They also don’t have systems and departments so sometimes we are dealing with the president. It can go quickly if you are dealing with the president, though. Credit Unions don’t have ad-hoc committees so they can get it done quickly.

Kori-Is there ever a situation where the seller is trying to list their property and they find out they have to do a short sale and their is no other option?

Elizabeth-The option everybody has is to ignore the problem, not pay the mortgage, and stay in the house as long as possible. I wouldn’t advise that for anyone because your credit is going to be pretty much devastated for 5-7 years and you won’t be able to move into another home for a long time. Another option is to rent. We call these home retention options. You could find a tenant that can pay the mortgage and ride it out until the market recovers. Another option would be to do some kind of workout with the bank. The popular term is a loan modification. It’s really difficult to do that. The options are rent, hold out, get a better job, make more money, pay your debt, rob Peter to pay Paul, modify your loan, short sale, or walk away by using strategic default/foreclosure which is the worst thing out of all the ones I just described.

Adam-That’s actually how our property management company started growing. We would go to these people’s houses to sell them and then find out they were going to lose a lot of money so we would offer to rent it for them for more than their mortgage payment. Now we have a lot people who want to be property owners or investors but it started out with a lot of people whose option was short sale or rent it. There was some law that I forget  what it was called. It was something like the home mortgage forgiveness act of 2012. Do you know what I’m talking about?

Elizabeth-That’s the tax act. The mortgage forgiveness debt relief act and that expired in 2013 but they extended it to protect everyone who closed in 2014. If you closed a short sale anytime in 2014 you will not be taxed for that deficiency. If a bank does a short sale and doesn’t get that $75,000, the IRS sees it as phantom income and is a forgiveness of debt. The IRS has the right to tax you on that phantom income. That act protects everybody and does not permit the IRS to tax on that shortage on any closings that happened in 2014. Most people that short sale their home qualify for the insolvency clause. We make sure that all our clients always go to their tax adviser. Most people qualify for this clause which existed before the act.

Adam-During this deal I’m doing with the credit union they said yes to doing a short sale and then said the seller will be responsible for the difference. I told them that is not a short sale. They were still trying to get the money from them. You are saying the seller needs to look into this insolvency clause you mentioned?

Elizabeth-They do but what you just said is different. Now we are talking about taxation. The deficiency that the credit union is trying to get is probably going to be set up with scheduled payments with the client over 5 years.

Adam-I don’t think we even got that far.

Elizabeth-Let’s just assume they did. The seller would not receive a 1099 because the bank didn’t take a shortage. The bank is still getting their money. If the credit union did waive the deficiency they can issue the 1099 to the seller to pay taxes on the difference.

Adam-I’ve come up with 3 reasons why a seller or a realtor should use a company like yours instead of doing it alone. One is you can possibly help the seller save their credit. Number two is that it is going to happen faster. I’ve done a short sale before that took 2 years and it didn’t close. It was very painful. It was a $30,000 and we did a lot of work for 2 years. Do you also help people avoid the tax on phantom income?

Elizabeth-Do you want to start with the first one? You said credit, speed, and tax. We save their credit. I published an article on this and The Huffington Post and Baltimore Sun picked it up which I was excited to see. Everybody thinks their credit is this magic 3 digit number associated with their social and if you are really lucky you have an 800. Credit is so much more than that. That little 3 digit number is the FICO and you can get it for free through lots of websites. Credit is also the ability to purchase another home. If somebody goes through a short sale, we can get them back into another house in as little as a year. If they stick their head in the sand and do not address their problems and are done with the house, they are not done with their life. In our country credit is everything. They may not be able to get back into a home for 5-7 which is a big deal if you have the wife, kids, and dog. Not too many people like to live in the basement of their parent’s homes and it’s hard to find a landlord that will even rent any space to you. If I were a landlord I would look for another tenant. Another thing is that a lot of our jobs are tied to a security clearance. If you touch money as a cashier there is some kind of a security clearance tied to your position. If foreclosure hits your credit record then they pull credit every few months and they could legally terminate you because it has breached the conditions to your security clearance. It could also prevent you from getting a job that requires a security clearance. It also affects the interest rates for financing a car or getting a line of credit for a business. I don’t know too many lenders that will loan money if you have a foreclosure on your record. Because we specialize in it we can really help your credit and life as you know it. The second thing was speed. This is all we do 24/7 and we do it well. We have direct contact with with the banks and investors and because we are a law firm we can get through doors others can’t. We have contacts with the U.S. treasury who have drafted short sale programs. People who have known us for years give us preferential treatment because they don’t have to educate us. We are way ahead of the curve and we reduce the time from 12-14 down to 2-4 months. It’s not just us, though. The banks have gotten better. We also keeps realtors out of trouble. For example, the supreme court in Illinois has passed an opinion on the mortgage sub-committee that says any component of short sale negotiations is the practice of law because we give legal advice as to deficiencies and credit. We negotiate notes and mortgages. We always working with divorce and bankruptcy attorneys. We also keep everybody out of trouble. We get phone calls from people who say they are getting sued by their bank because they short sold their home three years. They were told they got to was their hands of it. Well, the deficiency wasn’t weighed because it wasn’t negotiated properly.

Adam-It’s not like the seller needs to call you or a realtor. We can all work together, right?

Elizabeth-That’s right. We can not do this without people like you. It’s a perfect collaboration where we negotiate and we have a 95% success rate so you still get your commission. We row the boat in the same direction.

Adam-Have you had success in helping people not get a 1099 for the difference?

Elizabeth-Absolutely. HAFA is a short sale program that was propagated by the U.S. treasury and that is alive and well today. We love HAFA because that puts $10,000 in the seller’s pocket for relocation incentive fees. That’s a big deal. If the deficiency is waived there is a chance they will get the 1099. 1st of all, you always want that deficiency waived. You don’t want the bank waiting to go after you after you get back on your feet. If they do get a 1099 we need to make sure we give them the information they need to take to their tax adviser. Last week on the day extensions were due I was actually giving the tax publication information to an accountant because they weren’t sure what to do. I was giving them the mortgage debt forgiveness publication so they could file that and in this situation they were protected by the act. If they are not then we make sure those accountants are handling it correctly under the insolvency clause.

Adam-When you first started you were the only company I knew of in St. Louis that was doing this and I guess you now have some competitors. I’ve had 2 buyers ask me about this particular house that is up for short sale and it says that the buyer has to pay $4,900 at closing. Is that you guys? Is that something else? Can we talk about money a little bit?

Elizabeth-We are the only law firm that is doing this exclusively in the mid-west. Our main competitor is not a lawyer. This is such an arcane area and you can’t go to a seminar and learn the practices of short sale law. We will be teaching at the real estate institute next summer. Our competition are agents who think they can do this but unfortunately we get phone calls from people who previously short sold with agents and they are being sued by their banks. When you see the buyer’s side paying fees that means a non-legal entity person, company, or structure that are charging the buyer fees for negotiating. We simply don’t have to do that because we’re a law firm and we have 3 other sources to get our fees from. For example we can get our legal fees from the seller’s incentive like the HAFA program. We influenced that policy and guideline so we could get paid directly on the HUD from those fees. We can get paid from any bank seller incentive fees. We can collect advance legal fees from the seller when we take on the file. There is a lot of other different areas that we can take the fees because we work closely with title companies because we are the seller’s attorney. In the short sale process they do allocate money for the seller’s legal fees. When you are a non-legal entity there are very few places they can take it. What were concerned with is that when you charge the buyer the almost $5,000 that’s going to narrow your pool of buyers and how do you reconcile that with your fiduciary duties to your seller? That’s a problem. We simply don’t need to take the fees from the buyer.

Adam-Where is that even discussed with the buyer? You wouldn’t put that on the sales contract.

Elizabeth-Apparently there is a contract they have that everyone signs on at the beginning when the buyer makes the offer. What we do is we represent the seller. We get our business form realtors that discover these situations and we are brought on to help out and we protect your commissions. In those situations they have it all agreed up front and where the buyer is going to pay the fees maybe on the HUD or upfront. That is something that was born out of the recession where people were trying to figure out how to get paid to do these. They were not legal entities so they were not allowed to take anything from HAFA or the seller. You can’t take advance fees from a seller if you are not a legal entity. We’ve had agents say they want the buyer to pay our fees and if they already have the deal put together then we consult with the Missouri Association of Realtors legal council. We know how to do that right and keep everyone out of trouble. We can do it as long as it doesn’t prejudice the best interests of our client. That is a one off though and we don’t promote it.

Adam-It seems weird that someone wouldn’t use your services. Why would someone use a non-legal entity?

Elizabeth-I think it’s because we haven’t gotten to their office to give them a presentation and there are only so many of us. There are choices in advertising and it is always an ongoing challenge. We do word of mouth and presentations. Ads in papers and billboards don’t seem cost-effective or targeted. In Chicago we are going directly to the homeowners by dropping 26,000 letters to distressed home owners to show them a better way. Why would someone not use us? I don’t know. Our success rate is 95% and we don’t take your commission.

Adam-How can the listeners get a hold of you.

Elizabeth-Our number is 6362202218. Our website is KayserLawFirm.com. The email is [email protected] One thing I want to mention is that is how you get in the door to get us on board but once you are in our firm and you become a client, you get the direct contact information of the person that is going to handle you. You don’t have to go through the front office or a secretary. You have your negotiator’s direct contact information.

Adam-I have 5 questions that I like to ask everybody that are a little more personal. Who lives under your roof?

Elizabeth-I have 2 children. I live in West County. My 25 year old is the marketing strategic coordinator for HEC TV, which is Higher Education Channel. She has a degree in communications and marketing. Now, she doesn’t live with me. I have a 12 year old 7th grader. I am engaged to be married. We don’t live together yet.

Adam-Congrats! Your parents would be so  happy about that.

Elizabeth-We live at 270 and Dougherty Ferry and have been there for 8 and a half years. It is a wonderful neighborhood.

Adam-Where are you your best?

Elizabeth-I am best at creating, energizing, motivating, and making things happen. I love to connect the dots. I love to look at dots and see the synergy and the common denominator and putting the right people in the right positions and accelerating companies. I love to identify the deficiencies and the defects in not just my own company and improve it but other companies as well. I run this law firm but there are other interests that I have. I started my first company when I was 15 so I’m more of an entrepreneur than an attorney.

Adam-Do you have a favorite book?

Elizabeth-I grew up in the country and I was fortunate to have 3 acres and a gorgeous quarter horse and spent a lot of time with him. I have a lot of that outside nature in me that I always go back to on the weekends. I love the outdoors and my favorite place to visit is Costa Rica where I experienced earthquakes, volcanoes, rafting, and ziplining. One of the books that really impacted me that touches that nature part of me is Last Child in the Woods. It’s about how culture has lost touch with nature and we are so digitized. The other book in regards to my business is High Tech High Touch. It’s about how we are quickly losing the touch of the power of the human voice. I just did a presentation about the power of the human voice downtown at the Cortex building which is on my website. One of the popular acronyms that we use at the firm is PUP. It stands for pick up the phone because the voice is so much more powerful than an email.

Adam-What’s your guilty pleasure?

Elizabeth-I love a good movie. I can’t stand TV. I’m always looking for a good place to dance because I love to dance.

Adam-Who is your mentor and how have you thanked them?

Elizabeth-Richard Branson when it comes to business. My other personal mentor would have to be my father. He’s the steady Eddie. He is amazing at staying the course. He is extremely honest. He taught me that if you find $20 on the sidewalk you go to the person in front of you and ask if they dropped it. Business is Richard Branson. The guy is amazing. I’ve read his books. He is the icon of entreprenuerialism. I’ve tried to get in contact with him but it is hard.

Adam-He is probably on his own private island.

Elizabeth-That or in a hot air balloon.

Adam-Great! That’s the end of it. Tell me anything else you want to mention that we forgot.

Elizabeth-I do want to underscore the fact that we would love to help people. That’s one thing that we enjoy doing and we really do help people in their time of need. The short sale is an amazing tool that really is a win-win-win. It’s not a victor for only one person. It helps the seller preserve life as they know it. It is not an embarrassing situation; foreclosure is. We can really help them get through the process. We just got a call from a former client and we just short sold their property and they called us to get the approval documents and now they are buying another house. If they had let that go back to the bank that phone call would have never happened. It’s a win for the buyer because they get a good deal. It’s a win for realtors because it keeps everyone in the transaction. If it goes back to the bank you’ve lost it. If it goes for the short sale you can not only sell their house, they are going to be calling Adam Kruse again to get back into another house in a year because they are going to be qualified. It also helps the banks because they lose less money.

Adam-Beautiful! KayserLawFirm.com. Thanks for coming in today.

Elizabeth-Thanks, Adam.

 

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