Here is is a bakers dozen ways to get Short Sale listings.
- Right after the closing, take a video of your Short Sale sellers showing how happy they are. Post the video to YouTube. You will need to get views on your videos using good IT work to get high placement on Google and Bing. You want potential sellers to see people who look and talk like them, who had the same problem they have and who have solved that problem with your services. The viewers can see that hey feel great. For examples, go to Google and type in Short Sale Raleigh, Short Sale Durham or Short Sale Wakefield. My favorite video is http://www.youtube.com/watch?v=3f-ArTsesBo .
- Contact your past clients and friends telling them of your special talents to help people who are in trouble so that they can refer their friends and neighbors to you. My favorite method of communicating is video emails, but mail or phone calls work. Ask them if they know someone in financial trouble, because they may be the ones in trouble but are reluctant to start the conversation with that admission.
- Many people with financial problem to not want to publicize it, so they want to find information while remaining anonymous. So, you should create a website easily found by people in financial trouble. Let the viewer investigate the choices they have to deal with their problems by providing accurate, detailed information. Let them come to the conclusion that you know what you are talking about and make it easy for them to contact you. This website of www. CreateAShortSale.com is an example.
- Most distressed homeowners are ignoring the bad news that comes in the mail. To get to be one of the letters that is opened, use hand written and hand addressed letters. If you can send “lumpy mail” with a pen or other object in it, the chances of being opened are even higher because the recipient is curious to see what the lump is. Get access to the list of people who are behind on their mortgage, or those where the notice of default has been filed. Send them the personally addressed letter with a hand written letter inside. You can mass produce the handwritten letters on good quality copiers, then hand write the person’s name and greeting.
- If the homeowner will not come to you, you go to them. Knock on their door and start the conversation from their point of view. In other words, do not point out that they are in trouble because they do not want to hear about it. Instead, say something like ?I am an expert at helping people where their bank is being mean to them.? Have good quality information with you like the Treasury?s brochures from Making Home Affordable, or my book, Create A Short Sale, Your Guide Through the Short Sale Maze. Most men will claim that they have the problem handled, so leave the materials and your contact information as they may contact you after they find your materials are helpful. Follow up with a second visit and if they are not home, leave more information . Put it in a Fed X envelope as it is more likely to get opened, and you can get them for free.
- If the property is vacant when you visit, or if your mail comes back, these may be some of the most valuable leads according to Ken Blevins of Stewart Title. He explains that the owners have given up their emotional connection to the house. You can hire a skip tracer to find the owners of properties that are vacant, although sometimes you only have to look up their names in the tax records and use social media like Facebook. In North Carolina and several others states, you can get the owner?s attention by making them aware of the fact that after a foreclosure the lender can chase them for the deficiency (the amount that is not paid on the loan at foreclosure). Since a Short Sale usually results in a waiver of the right to pursue the owner for the deficiency, they may be interested in your help.
- I have sold dozens of condos in a neighborhood where nearly all of the condos were sold to investors at prices that were way too high for the market so the loans are well above market value. Since the investors were from out of town, they overpaid. Also, you can find a neighborhood where the builder offered ?creative financing? because many of them will be in trouble. Do a short sale in that kind of neighborhood. Then, tell everyone else in the neighborhood. Better yet, have your successful Short Sale seller tell everyone else in the neighborhood. Even better yet, be a guest speaker at a homeowners association gathering so you can talk directly to the residents to show them how you can stop the foreclosures in their neighborhood.
- Contact the management companies for homeowners associations. Create a letter for them that can be sent to their owners who are not paying the HOA dues. The letter needs to offer a range of help, from government assistance, loan modifications and Short Sales so that it is not just an advertisement for you. For example, North Carolina has www.NCforeclosurePrevention.gov that has a range of assistance. Then, mention www.MakingHomeAffordable.gov to discuss loan modifications. Finally, offer your website with information about Short Sales. You need to provide accurate information about all of these programs to the owners. You provide a benefit to the management company, because the letter you draft is something that sounds like a friendly neighbor trying to help a neighbor in trouble, instead of the threatening demand letter that is trying to collect the back dues. Also, make sure the management company knows that the back homeowners association dues are paid up when you close the Short Sale. Offer to be a guest speaker at the homeowners association meetings, or a meeting of the managers that work for the management company to discuss all this information.
- Some of the most distressed properties are the expensive ones, because that part of the market has fallen the most. Formerly wealthy families do not want to admit their fall. They may not respond to you, but they listen to their accountant and financial advisor. So, contact financial advisors and CPA?s to let them know that you can get their clients out from under an ?upside down? property, get a full release from the rest of the debt and have no income tax associated with the forgiven debt (if the owners qualify under the terms of the Mortgage Forgiveness Debt Relief Act of 2007). See if you can make a presentation at any gathering of CPAs or Financial Advisors, then let them refer their clients to you.
- In a divorce, neither spouse may want the ?underwater? house. Contact divorce attorneys to show them how you can get this weight off of their clients? backs. Be sure to discuss the waiver of the right to pursue the debtors for any deficiency so that you can show them that a Short Sale eliminates the problem for good. The people involved in the divorce want to complete it, so they are highly motivated sellers, but they are frequently difficult to deal with.
- People in trouble contact bankruptcy attorneys. A bankruptcy does not eliminate a foreclosure, it just delays it. If the property is ?upside down?, the solution may be a Short Sale. Most lenders are very careful when dealing with a Short Sale property that is associated with a bankruptcy, so you may be able to get a better, quicker, approval for your Short Sale.
- Some Churches and other civic organizations have gatherings to help people who have lost their job or who have other financial problems. Offer to be a guest speaker at one of those meetings and bring materials from Making Home Affordable for the participants to take with them, with your contact information on the materials.
- I started teaching Short Sale classes to other Realtors when I had the emotionally draining experience of going to the foreclosed house of one of the Realtors who worked with the same RE/MAX office that I do. I had to tell her she had to move in two weeks if she wanted to get a Cash for Keys payment. When you watch a fellow Realtor melt down in front of your eyes, it hurts your heart. I wanted to give my fellow Realtors a way to make a living in tough times. However, a large number of the people who take my class realize that Short Sales are difficult, require you to stay up with the latest developments and take a lot of work. So, they refer Short Sale sellers to me. The more classes I teach, the more referrals I get. By the way, you will get many more Realtors to come to the class if you get it approved for continuing education credit.
Now, use these techniques to go out there and get more Short Sales listed, so we can get more Short Sales sold. The faster we work through the inventory of “underwater homes” the faster America recovers.
On November 1, 2012, the Treasury issued Supplemental Directive 12-07 that dramatically changes the way short sales are done for non-GSE loans i.e. all the loans other than Fannie Mae, Freddie Mac, FHA, VA and Rural Housing Service. Fortunately for property owners in distress, the directive extends the life of Home Affordable Foreclosure Alternatives (HAFA) so that you can make a request to do a HAFA short sale up to December 31, 2013 and be covered by the program, so long as your sale closes before September 30, 2014. While the regulations refer to the property owner as a borrower, because they are written for lenders, this article refers to them as sellers, because this is written for people interested in real estate sales.
Initiation Changes from Bi-lateral to Unilateral
The biggest change made by this Directive is to expedite the process of initiating the Short Sale. The old Short Sale Agreement (SSA) was a two party agreement betewen the lender and the seller to a unilateral notice called a Short Sale Notice (SSN). The old version of HAFA started with the sellers requesting the lender to qualify them for HAFA, then waiting patiently until the lender responded. If the lender approved the HAFA Short Sale, the proposed Short Sale Agreement (SSA) was sent to the seller. This SSA had to be signed by the seller and returned to the lender in order to complete the HAFA approval. The process also had a trap that if the sellers did not respond within 14 days to the proposed SSA, they could be denied the benefits of HAFA.
The new procedure eliminates the delay of waiting for a response when the seller wants to be pre-approved for a HAFA Short Sale. It looks like a change in forms, but it is much more than that. The Short Sale Notice (SSN), replaces the Short Sale Agreement (SSA) and you would think that is no big deal to have a different form. The HAFA Short Sale is initiated when that SSN notice is sent, not after deliberation by the lender and a response by the Seller. The lawyers would say this is not a bilateral agreement that is created when the lender consents. It is a unilateral notice. This changes everything and eliminates the possibility that the HAFA Short Sale will be terminated if the seller does not get the paperwork back to the lender in time.
Out with Old Documents, In with New Documents
The directive starts by saying that some old documents like the Short Sale Agreement (SSA), Request for Approval of a Short Sale (RASS) and the Alternative RASS not going to be used any more. Then it says that many other documents are not mandatory, as the lenders can develop their own version so long as they are consistent with the HAFA regulations. This flexibility may be necessary because the lenders will have to dramatically speed up the review process, so allowing them to create their own versions of the forms should facilitate that.
The Request for Approval of Short Sale (RASS) is no more and there is no longer an Alternative Request for Approval of a Short Sale (Alt RASS). They are replaced by the Acknowledgement of Request for Short Sale (ARSS). I have to smile when I pronounce that acronym. This document is used if you have entered into a sales contract before sending the lender a Short Sale Notice (SSN) or other initiation of a HAFA short sale.
Hardship Documented or Pre-Determined Affects the Timeline
There are major distinctions in the HAFA process found in the new regulation depending on whether a Hardship Affidavit has been submitted to the lender. The regulations us the term Hardship Affidavit to include either the Treasury Hardship Affidavit (that includes Dodd-Frank affidavit) or a Request for Mortgage Assistance (RMA). Either set of documents will be considered a Hardship Affidavit and trigger different results if they have been submitted.
Pre-determined Hardship is a brand new concept found in the regulations. If the borrower is 90 days or more behind on the mortgage payments and has a credit score of 620 or less, the hardship has been pre-determined. In other words, meet those two criteria and you qualify as having a hardship in the eyes of HAFA. HAFA Affidavits, discussed later, will have to be filed with the lender on or before closing, but the borrower is already determined to have a hardship.
Here is where the filing of a Hardship Affidavit with the lender makes a difference. If a seller has filed a Hardship Affidavit with the lender and request pre-approval for HAFA, the lender must respond within 30 days. The response can be (1) a HAFA approval (specifying the terms of the approval), or (2) denial of HAFA but approval for a proprietary short sale (a HAFA-like short sale that many major lenders have developed) or (3) a denial of all forms of short sales. The advantage of a Pre-determined Hardship can be seen in the next part of the regulations. The same rules and time limits apply for a seller who qualifies for Pre-determined Hardship i.e. you get this faster response without filing the Hardship Affidavits.
If no Hardship Affidavit has been filed with the lender and if the borrower does not qualify for Pre-determined Hardship, the procedure is different. The seller requests pre-approval under HAFA and the lender must acknowledge this request in 10 business days. Part of that acknowledgement is to send the lender?s version of the hardship forms to the seller and specify the terms the lender will use to make a decision on HAFA. The acknowledgement also includes a timeline showing that the lender has to make a determination on the HAFA review within 30 days of receipt of the Hardship Affidavit.
Essential Terms of HAFA Pre-Approval
When you get pre-approved for a HAFA short sale, the lender must give you the terms of the pre-approval in writing. The Short Sale Notice (SSN) should fulfill that requirement. However, lenders are not required to use the SSN. So, if they use a proprietary short sale notice or other form of pre-approval, it must include the essential ingredients of a HAFA short sale. The new amendments say they must include the following HAFA short sale terms:
1. A description of what the sellers must submit when they get a sales contract (referred to as Offer Documents). The regulations give examples such as (1) a copy of theexecuted sales contract and all addenda, (2) the buyer?s proof of funds or pre-approval letter on letterhead from a lender and (3) information regarding the status of junior liens and/or negotiations with junior lien holders;
2. A requirement that the seller and the buyer(s) must execute a HAFAAffidavit prior to the closing. The short sale cannot close without this HAFA Affidavit;
3. The new re-sale limitations that prohibit a re-sale within 30 days and limit the sales price for 31 to 90 days after closing;
4. A requirement that the borrower must execute a Hardship Affidavit as a condition of closing;
5. If the seller has a real estate license, he or she cannot earn a Commission by selling his or her own property and may not have any agreement to receive all or a portion of the commission after closing. In other words, if the seller is a real estate agent, he or she cannot get a referral fee after the closing;
6. While the seller is in compliance with the terms of the preapproved HAFA short sale, the lender will not complete a foreclosure sale. However, the lender may initiate or continue the foreclosure process, but cannot complete the sale;
7. A requirement that borrowers are responsible for conveying marketable title;
8. The borrower is responsible for property maintenance and repair until closing;
9. Upon successful closing, the lender will record a lien release in full satisfaction of the debt. In other words, the lender will waive the right to collect any deficiency (the amount that the payment is ?short?).
10. If the seller intends to request relocation assistance for any non-borrower occupant (usually a tenant) the seller will need to provide evidence of occupancy and a Borrower Occupant Certification as well as a Dodd-Frank Certification, regardless of whether the seller or someone else is receiving the HAFA relocation assistance;
An optional term may say that any sale approved by the lender may provide an option for the property to be sold to a non-profit organization with the stated purpose that the property will be rented or sold to the borrower;
The most wonderful part of the amendments to HAFA involve speeding up the process. This will help prevent buyers from walking away when the decision making process takes too long. The time limits depend on whether or not you have a pre-approval..
During the Pre-Approval process, the lender will establish the amount of money that will be acceptable to approve the short sale, called the Minimum Net. With a Pre-Approval for your HAFA Short Sale, the review process for an offer starts when the offer is submitted. If the net proceeds equal or exceed the Minimum Net and the offer meets all other terms of the Short Sale Notice (SSN), the lender MUST APPROVE it in 10 business days of receipt of the Offer Documents. Think about that. If you have an offer that provides the amount of money specified in the HAFA Short Sale Pre-Approval, you know the offer will be approved, and it is supposed to only take 10 business days to get that approval.
With a Pre-Approval, if net proceeds of the offer to purchase are lower than the specified Minimum Net, the lender must respond within 10 business days of receipt of the Offer Documents with an approval, disapproval or intent to make a counter offer. So, even if you do not get the amount of money required by the Short Sale approval, you will get an answer in 10 business days. You might even get an approval in those 10 business days.
Without a Pre-approval, the seller submits an offer to purchase. The lender sends an Acknowledgement of Request for Short Sale (ARSS) (or something equivalent) within 10 business days. If no Hardship Affidavit has been submitted prior to this, the Acknowledgement of Request for Short Sale (ARSS) includes sending the required Hardship Affidavit to the seller. In other words, the lender sends a response that acknowledges the sellers? request for approval. The next step depends on whether a hardship has been established. If a Hardship Affidavit has been submitted or if the seller meets the requirements for a Pre-determined Hardship ,, the lender must approve, disapprove or counter the offer within 30 calendar days. If no hardship affidavit has been submitted and the seller does not meet the Pre-determined Hardship standards, the lender must approve, disapprove or counter the offer within 30 calendar days of when the Hardship Affidavit is submitted. So, it is important to either submit the Hardship Affidavit or establish that the seller meets the requirements of a Pre-determined Hardship. Otherwise the lender just acknowledges the seller?s request and the time limit does not start running until the Hardship Affidavit is submitted.
Affidavits Required for Closing
A HAFA Short Sale cannot close without a HAFA Affidavit. In the HAFA Affidavit, everyone involved in the sale states that this is an the arm?s?length sale, verifies the information about the occupancy of the property and affirms the accuracy of the HUD-1 Settlement Statement. Also, the affidavit acknowledges the limitations on future resale of the property.
The seller must show evidence satisfactory to the servicer that the borrower, tenant or other non-borrower occupant lived in the property as a principal residence. The time of residence is important. The residence must be occupied on (1) date the borrower requested a HAFA short sale or (2) the date the borrower asked for the approval of an offer to purchase if there was not a prior request for the pre-approval of a HAFA short sale.
Time Limits on Resale
The current regulations prohibit resale
of a property for 90 days. The Directive shortens that time limit to 30 days. Then, the Directive puts a restriction on sales that occur between 31 and 90 days after closing. The property can be sold for a sales price that is up to 120% of purchase price. After 90 days, there is no restriction on the sale of a property purchased as a HAFA Short Sale.
More Money for the First Lender Who Allows Payment to Junior Liens
The amount of money allowed to be paid to all junior liens is not changed by this directive. It remains at $8,500. Junior liens are second, third and subsequent loans, as well as judgments and other liens. The mortgage that is in first position wants as much money as possible. When this first lien holder allows junior liens to be paid up to $8,500, the old regulations allowed the first lien to be reimbursed 1 dollar for every 3 dollars allowed up to a total of $2,000. The Directive doubles the ratio and increases the limit. New rule reimburses the first lien hold 2 dollars for every 3 dollars paid to the junior lien holders up to a total of $5,000. Money talks when you are negotiating with the first lien holder. Since they get more money when they allow payments to the junior lien holders, it makes it easier for the first lien holder to approve the Short Sale.
In Summary, the new directive changes the power to initiate a short sale by allowing the borrower to just send a notice to the lender. The way of establishing a hardship is changed and there is even a Pre-Determined Hardship. Some of the required form change. Some of the requirements for relocation assistance and for reimbursing the first lien holder change. The most welcome change in my eyes is the shortening of the process that require the lender to respond in time limits ranging from 10 business days to 30 calendar days. Hopefully, this will result in more buyers ?staying the course? and completing the purchase of a Short Sale. Maybe the horror stories of Short Sales that take forever are a thing of the past.
Fannie & Freddie Say 30 Days for Short Sale Review, 60 Days Maximum for Raleigh, Durham, Cary & Wake Forest North Carolina
The only thing short about a short sale is the payment on the existing mortgage. The time for review is way too long. To correct this problem, Fannie Mae and Freddie Mac issued new guidelines to their servicers. See http://www.freddiemac.com/sell/guide/bulletins/pdf/bll1209.pdf for Bulletin 2012-9 by Freddie Mac. Similarly, see https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2012/svc1207.pdf for Servicing Guide Announcement SVC 2012-07
The servicer is supposed to respond to the submission of a short sale package within 3 business days. From the time a complete package is submitted, including a proposed North Carolina Offer to Purchase and Contract and Short Sale Addendum, the servicer is supposed to respond to the proposed short sale within 30 days. If the servicer does not approve or disapprove the short sale within that time limit, the servicer is required to give the borrower a weekly report until there is a decision. The regulations say the decision must be made within a masimum of 60 days.
Are all the servicers in compliance with this requirement? Are you kidding? The last one I talked to on a Freddie Mac loan for a Raleigh Short Sale listing laughed when I pointed out this regulation, then said it would take 90 to 120 days.
Other programs like Home Affordable Foreclosure Alternative (HAFA) specify that the servicer is supposed to respond the the short sale offer within 30 days if you have a HAFA approved short sale in process. Watch this video for a better understanding http://www.youtube.com/watch?v=qFH6tpdAZXI
Once the servicers get into compliance with these requirements, short sales will become much more acceptable to buyers. The number of buyers who will wait 30 days for an answer is much higher than the number of buyers who will wait 6 months. Any suggestions on how to get wider compliance with these rules?
If you own property in NC or are in the Research Triangle area and perhaps may need to Short Sale your home or business, please call or email Tim to request a confidential appointment regarding your specific requirements to Short Sale real estate in Raleigh, Durham, Cary, Wake Forest or other surrounding Research Triangle area towns in North Carolina.
In 2011, there were 340,000 short sales with 88,000 of them in the fourth quarter according to Realty Trac. This is a substantial increase, even though it is still less than 30% of the total number of sales. Corelogic predicts that short sales will increase 25% in 2012. When you consider that Corelogic says that 22.8% of all homes in America are underwater, there are 11.1 million homeowners who may need help from Short Sales. So, there this year should be busy if you do Short Sales.
As a part if this package of good news, the Making Home Affordable program was extended through 2013, which includes the extension of the HAFA Short Sales that are part of that program. Supplemental Directive 12-02 was the subject of another chapter of Create A Short Sale, but it deserves a reference here because it eliminates the occupancy requirement for non-GSE HAFA, allows the borrowers to make full payments to preserve their credit and increases the amount that can be paid to junior lien holders. While the Treasury is improving things (thank you Laurie Maggiano), Fannie Mae and Freddie Mac have left their HAFA programs alone, which leaves some room for improvement.
In April 2011, The Federal Housing Finance Agency (FHFA) augmented its servicing guidelines to improve the loss mitigation standards to require that the borrowers be provided with a Single Point of Contact from the servicer. Servicers are famous for sending borrowers through many different transfers to find the right person to talk to. Now, there is a single point of contact for the borrower to deal with the servicer if the borrower is going through any loss mitigation program, including a Short Sale.
Several of the major lenders have created Alternative Right Party Contacts, real estate agents that the servicer mention to the borrower and suggest that the borrower consider a Short Sale. Bank of America works with Digified Transition Solutions to try to get borrowers in touch with real estate agents who can discuss Short Sales. Green River and Service Link similarly contact their borrowers to suggest contact with certain agents to consider a Short Sale.
Bank of America, Chase, Wells Fargo and Citi have all improved their Short Sale process.
Bank of America has done so many improvements that it is a separate chapter that you can see at http://tinyurl.com/bv6xvp2.
The biggest improvment is to eliminate the sequential nature of their review in Equator to allow different parts of the review to be processed simultaneously. In short, this should speed up the process. Also, their valuation dispute tool is being rolled out in April 2012 to help with the problem with bad Broker Price Opinions (BPOs). They did a pilot program offering cash incentives to borrowers in Florda to get them to do Short Sales. Since that was a success, you might see it coming to a neighborhood near you.
Chase has a long way to go to get its Short Sale program in shape. Their executives are making a big effort. Chase sent a large contingent to REOMAC in Palm Springs in March, 2012 and a major part of their presentation concerned Short Sales. If you want training in their program, go to www.Chase.com/shortsale. If you want to get more specific with their HAFA program, go to www.Chase.com/HAFA . They have also set up a system to correct problems with your Short Sale review. If something goes wrong, call the Short Sale Hotline at 866-233-5320. If you need to escalate your review, send an email to firstname.lastname@example.org or you can call 877-496-9025. You can check the status of your short sale on Chase’s website. Even better, they will be moving to Equator in July 2012. With the new improvements to Equator that eliminate the sequential task processing, this should greatly increase the speed of processing Chase Short Sales.
Chase has a hard working executive who does free training for Short Sales in Bonnie Boards. She is making a great deal of effort to help real estate agents work with their system. For online information, the Chase Short Sale application and a list of its required documents can be found on their website. They appoint a Customer Assistance Specialist as the single point of contact for the borrower to make the communication better. To be sure that they do not miss an opportunity to prevent a foreclosure, all foreclosures are reviewed 90 days before the sale date and again 96 hours before the sale date by an independent foreclosure review team.
Chase has developed a List Assist program to reach out to borrowers in trouble and suggest a short sale. Chase uses a Short Sale Accelorator to mail a proposal to the borrower. They can offer an incentive to the borrower of $3,000 to $35,000 to encourage the borrower to do a Short Sale. These incentives apply only to Chase portfolio loan, if they are just servicing the loan there is no incentive unless it is a HAFA Short Sale. The lucky borrowers are selected by the Chase marketing department. Chase is also sending out letters with a pre-approval similar to HAFA where there is only one loan on the property. They will offer incentives with this HAFA-like program that can be up to $10,000.
Chase has a cooperative Short Sale program where you can submit the borrower’s information and begin the process even before you get an offer for the sale of the property. One of the important things for the agent to find out at this stage is if Chase has delegated authority from the investor. In other words, can Chase make the decision on your Short Sale if it meets certain guidelines without submitting it to the investor. If so, your review will be quicker. Also, ask the negotiator if there is any incentive that can be offered to the borrower, as they are aggressive with their offers to encourage Short Sales.
Chase’s goal is to get Short Sales approved in 25 days. While I really liked the people that Chase sent to REOMAC, my experience with Chase is that they are one of the slowest firms when it comes to reviewing short sales. If they get it down to 25 days, I will love it.
Wells Fargo actually believes that their Short Sales will decrease in 2012, partly because 92% of the loans they service are currently being paid on time. One of the things that Wells Fargo is proud of is that they will postpone 80% of the foreclosure sales if there is an offer to purchase the property and if you get the Short Sale package to them 10 days before the foreclosure. Like the other lenders, Wells Fargo is sending out letters to their delinquent borrowers to suggest they consider a Short Sale and offer an incentive that can be up to $15,000. These letters mention three real estate agents near the borrower who could help with a Short Sale. I am in the Wells Fargo letter for my area. These letters and offers are only made on their portfolio loans, which is only 5% of the loans that they service. There are no incetives on the loans where they are just the servicer unless it is a HAFA Short Sale.
Citi Mortgage has fewer loans in default than the other lenders, so they are not as aggressive in encouraging Short Sales. Citi does mail letters to their delinquent borrowers and they offer incentives. However, they will not reveal the range of their incentives. They have also set up call centers to contact their delinquent borrowers to encourage resolution of delinquent loans, including suggesting a Short Sale. If you have a Citi loan that is owned by Fannie Mae, Citi has an on site Fannie Mae support team that you can reach by calling 866-520-5499 to expedite the Short Sale review.
The beginning of Create A Short Sale is full of horror stories of the difficulty in completing a Shsort Sale. There has been a long evolution of improvement in the process. Now, the regulators are improving the Short Sale process. The major lenders are encouraging their borrowers to engage in short sales and streamlining the process. The life of a Short Sale agent is considerably better and there is hope for the future.
Today, Bank of America Short Sale executives Bob Hora and Stephanie Lowe gave a one hour webinar to the real estate agents who do Short Sales with Bank of America. The most exciting improvement is that the structure of the review that delayed the processing in their former system has been removed.
Bank of America uses Equator to process Short Sales. The Equator system was originally developed to be the interface between real estate agents who handle bank owned properties (REOs) and the asset managers for the lenders who need to get these properties sold. The original name for the system was ReoTrans . This kind of work involves a series of sequential tasks where one task follows another and you have to work through them in order. For example, the agent would first go out to the property to determine its occupancy before changing the locks and cleaning it up.
Chris Saitta, CEO of Equator, is very cleaver. ReoTrans changed to Equator when the potential for Short Sales came up. Now, Equator processes three times as many Short Sales as REOs. However, the system for Short Sales was still sequential i.e. outdated because it was designed for REOs. For example, you had to upload certain documents and get the tasks associated with the Short Sale package complete before the negotiator could open the task for ordering the Broker Price Opinion (BPO) or appraisal to establish the value of the property.
The new improvements change the Equator system from being sequential to being simultaneous. The Bank of America reviewers can order the BPO early, so they can be working on the file while they wait the five to ten days that it takes to get the BPO done. I have had files where Bank of America erroneously closed the file, sending me back to square one. With the sequential system, you had to walk through all those steps in the same order so that the process could not be expedited. Now, you can do many steps at the same time. That was the good news.
The less than wonderful news is that there is a standard third party authorization i.e. the document that allows Bank of America to talk to someone other than the borrower. In the past, all the members of a Realtor’s team could be authorized to be in touch with Bank of America. Now, the only people who can be authorized are licensed real estate agents and attorneys. This will slow down the process, as an assistant cannot call the help desk to find out what to do about any of the odd things that Bank of America does. That call will have to wait until the Realtor is available to make it.
The new procedure states that there are five documents that must be submitted at the beginning of the process. These are (1) the Bank of America third party authorization form (2) the IRS form 4506T to get information on tax returns (3) the HUD-1 closing statement, typically for a closing that is 60 days out (4) the signed purchase contract including the Bank of America Buyer Acknowledgement & Disclosure form and (5) the Bank of Aamerica Short Sale Purchase Contract Addendum. Since many of these are Bank of America forms, smart listing agents will upload those forms to the MLS with their listings, so any buyer making an offer will also sign the required forms.
The transition to this new system will happen on Friday the Thirteenth of April. If you have a Short Sale open with Bank of America, you need to have certain tasks complete. If you have a task to (1) submit short sale offer (2) upload the offer or (3) upload supporting documents, you have to complete that task by April 13. Otherwise, you will have an abundance of tasks to re-do and you risk having Bank of America close your file if there has not been any activity for a while.
I found it interesting that the real estate agents are supposed to comply with this new system by April 13. There is going to be training on how to comply with it on April 19th. Don’t you think the training should come before the compliance date?
The webinar discussed how to get the attention of your negotiator to straighten out problems. All of the communication has to go through the Message system in Equator. The justification is that it would keep the confidential information protected, so that sensative information would not be emailed. To the uninitiated, that sounds like a good idea because it is more secure and it leaves a record of the communication. However, Bank of America outsources many of its Short Sales to AMS, LRC and REDC. If the file is assigned to any of these outsourcers, the message system does not work. You enter a new message, hit send, and an error message shows up in your email telling you to call the outsource company. I sent two questions pointing this out during the webinar, one with the contact information for the Equator VP who is working on this problem, but there was no response.
The way the communication system is supposed to work is that you contact your negotiator through the Equator Message system. They have two business days to respond. If that does not work, you contact the team lead through the same system. Again, the response is supposed to occur in two business days. Stephanie Lowe said that they monitor this preformance, and their negotiators complinance is in the range of 87% to 93%. If the problem is not resolved, you contact the Short Sale Customer Care center at 866-880-1232 and the 800+ people who work there are supposed to straighten it out. I applaud the idea, but I have made many calls to the Customer Care center. The most frequent response is an appology that things went wrong followed by an explanation that they are powerless to fix it.
If you have a problem with one of the files that are outsourced to AMS, LRC or REDC, the system to resolve the issue is to complain to the outsource negotiator. If that does not resolve it, complain to the Customer Care center. If that does not resolve it, go back to the Customer Care center and they will put you into he Bank of America escalation system. Again, an appealing idea, but I have gone through that system with the only result being that an incorrectly closed file could not be re-opened, so I had to go back to square one.
There were a lot of questions about Bank of America referring Short Sales to real estate agents, similar to how they send their REOs to certain Realtors. Bob Hora said they would not be doing that. However, they are going to have a system where a borrower can look up a Short Sale agent in their area who has experience getting Short Sales approved with Bank of America. In other words, if you are an agent with a good track record on Equator with Bank of America Short Sales, you will be put into this system where a borrower can find you by putting in their address. Mr. Hora had to emphasize that this does not constitute an endorsement by Bank of America.
Bob Hora went over the leading reasons why Short Sales do not succeed. There were three leaders, each with about 15% of the failures. The buyer walks away. This is normally a function of how long the review takes, so the new expedited procedure should help that. The second reason is that Bank of America does not get the required documents. This is normally a situation where the investor gets picky e.g. the seller has most of his documents showing the first, middle and last names and some of the documents are only first and last name. The third reason is that the investor refuses to postpone the foreclosure sale. There are legendary stories about Bank of America giving a Short Sale approval and saying the buyer has to close the next day to beat the foreclosure sale. The faster system and standard documents should help the first two issues, so that there will be less times when a foreclosure postponement is necessary.
Stephanie Lowe answered a question about disputes over values i.e. the Broker Price Opinion (BPO) is wrong. She said the real estate agent can upload their own BPO or comps to dispute the value. If the property has repair issues, repair bids can be provided by the real estate agent. One interesting point is that they did not want an appraisal done by the buyer, claiming that Bank of America can only consider a value done by an unbiased third party. However, Ms. Lowe said you could upload the comps used by that appraiser to show that the valuation was wrong.
I appreciate all the effort to expedite the process, educate the real estate agents and provide online resources. Bank of America has come a long way. I enjoyed a comment by one of their executives at a recent conference that when you start from that far behind, you can improve dramatically. I think is comment was humorous, but they appear to be making more effort than any of the other lenders. I hope the new system works as well as expected.
Remember the bad old days of Short Sales, where you would call and call and not get in touch with anyone who could help you. Some servicers still have telephone systems that you cannot get through. Then, if you do get to your negotiator, you get no answer and a voice mail that is always full. Thank goodness for the Making Home Affordable guidelines, particularly Section 4 of Chapter 1 requiring a Single Point of Contract.
What is a Single Point of Contact? It is a relationship manager for the borrower who is supposed to be the contact for any information the borrower needs for any aspect of the Making Home Affordable program. Since a Home Affordable Foreclosure Alternatives (HAFA) Short Sale is a part of the Making Home Affordable program, a seller going through a HAFA Short Sale is entitled to this relationship manager. The requirement applies to all the large loan servicers.
The relationship manager must give written notice to the borrower within 5 days of being assigned as their manager, so you are supposed to find out in writing who to contract. That notice must give the borrower/seller a toll free phone number as well as one other method to directly contact their relationship manager. For example, the notice could provide the manager’s email. The notice also has to provide instructions on how to deliver any requested documents to the servicer, which eliminates the problem of the servicer telling the seller that they sent the documents to the wrong place. The relationship manager must attempt to contract the borrower/seller promptly after the assignment. The guidelines make it clear that communication with the borrower/seller includes communication with the borrower’s authorized advisor e.g. the real estate agent who has a letter of authorization on file.
The manual says “The relationship manager has primary responsibility for coordinating the servicer’s actions to resolve the borrower’s delinquency or imminent default until all available home retention and nonforeclosure liquidation options have been exhausted and for communicating those actions to the borrower.” To translate from government speak, the relationship manager works to coordinate the servicers efforts with the borrower’s efforts and explain the situation in a manner that the borrower can understand.
The single point of contract is required to (1) tell the borrower about the available options, what the borrower needs to do to make those options work, and the status of any of the borrower’s efforts (2) coordinate the documents so the borrower does not have to resubmit the same thing as well as tell the borrower if additional documents are needed (3) know the current status of the borrower’s case with the servicer and (4) coordinate with other servicer personnel (in house and outsourced) to be sure the borrower is considered for all non-foreclosure options. Just having the relationship manager know where all the documents are is worth it to me, as my team frequently sends in the same documents many times. Even more valuable is to have the single point of contact know what options are available, explain how to make them work and follow up on the seller’s progress in getting to a successful result.
If the loan goes into foreclosure after the failure of all other options, the relationship manager must be availalbe to answer the borrower/seller’s questions about the foreclosure and know where the borrower is in that process.
The servicer must give the relationship manager access to information and personnel to be able to tell the borrower what is happening with the borrower’s file in a timely manner. The relationship manager must also be provided with direct and immediate access to the people who can stop the foreclosure. The relationship manager has the obligation to tell the foreclosure people to stop it if that is reuqired under the Making Home Affordable guidelines. So, with a HAFA Short Sale you should not have those sleepless nights worrying about whether the servicer will get the foreclosure postponed.
If the borrower/seller asks to escalate, the relationship manager must help the borrower/seller contact the people who handle escalation for the servicer. It is one thing to want to escalate the case, it is another to have the manager who knows how to do it and then put you in touch with the right people.
The guidelines require that the servicer have enough staff to allow the relationship manager to provide the required level of service. In other words, the case load for each relationship manager must be reasonable so all of these tasks can be properly performed. Also, the servicer has to provide sufficient support personnel to provide the relationship manager with the resources necessary to deliver the required level of service.
What does this mean for real estate agents? Once you are involved with a HAFA Short Sale, find the relationship manager because this single point of contact will make your communication with the servicer much easier. At the very least, you will know who to call if it is necessary to stop the foreclosure.
The Mortgage Assistance Relief Services (MARS) rules by the Federal Trade Commission (FTC) are designed to deal with the scum who will take advantage of people in danger of losing their home. There are people so heartless that they will promise to save desperate homeowners, take their last little bit of cash, then do nothing to help them. The MARS rule requires certain disclosures and prohibits certain things, like charging up front fees and telling borrowers to stop communicating with their lender. In general, I support what it does. However, it messes up Short Sales.
The rules require disclosures that were hard to translate into the Short Sale situation, so they were confusing to potential sellers. The FTC Compliance Guide found at http://business.ftc.gov/documents/bus76-mortgage-assistance-relief-services-rule states that Realtors need do the following with borrowers (“them”) :
You must tell them upfront key information about your services, including:
- the total cost,
- that they can stop using your services at any time,
- that you’re not associated with the government or their lender, and
- that their lender may not agree to change the terms of their mortgage.
There was an abundance of fear of prosecution by the real estate community, so the FTC decided it would not enforce the provisions of this rule against real estate agents who did short sales. In July 2011, the FTC said “As more and more American homeowners seek short sales, it is especially important that the Rule not inadvertently discourage real estate professionals from helping consumers with these types of transactions.” For the whole FTC release, go to http://www.ftc.gov/opa/2011/07/mars.shtm
However, this is just a stay in enforcement. What happens if there is a change of heart by the FTC, something that frequently occurs if there is a change in the administration. The FTC did not repeal the rule. It did not change the portion of the rule defining its application to real estate agents. It just said it would not prosecute real estate agents for certain violations of the rule…. for now. They can reverse that stance at any time.
What should real estate agents do? I think the safest thing is to follow the requirements of MARS. Give the disclosures when you meet with a seller to discuss listing their home. Don’t charge up front fees. If you must charge a seller, do it after performing the service for which you are charging. If the Short Sale does not close, you do not collect the commission. The FTC rule also bans misrepresentations and that ban is not covered by the stay in enforcement. However, real estate agents have many, many regulations that ban misrepresentation, so you already know to avoid that violation.
Is it absolutely necessary to follow the requirements of MARS? No. You will probably be fine if you believe the FTC and ignore the law while their stay of enforcement is in effect. However, the more cautious way to run your real estate practice is to follow those rules so that if there is a change in the enforcement policies, you are not sitting there with a bunch of files that do not meet the MARS requirements.
Some crooks find a way to prey on desperate homeowners, so those of us who are honestly trying to save those homeowners have to work harder to abide by more rules. You have to enjoy the irony.
Fannie Mae set up the Short Sale Assistance Desk as a way to get a quick resolution to problems with their Short Sales. Instead of waiting months for an answer, the sellers can get issues resolved in a few days by using this escalation process.
How does it work? It only applies to loans where Fannie Mae is the investor. To find out if your loan is a Fannie Mae loan, go to www.FannieMae.com/loanlookup and put in the address of the property. If it is a Fannie Mae loan, then you may be able to use the system.
The main requirement is that the Multiple Listing Service has to cooperate with the Short Sale Assistance Desk. Fannie Mae enters into an agreement with the Multiple Listing Service where the property is located and sets up a system within the Multiple Listing Service website to implement this review procedure. There is a button placed on the MLS website to get help from the Short Sale Assistance Desk. Also, Fannie Mae provides materials to be placed in the MLS for agents to be educated on how the system works.
If there is a problem that qualifies for this escalation, the listing agent pushes the button on the MLS and initiates the process. Fannie Mae is notified of this initiation. The listing agent submits a Borrower Authorization Form created by Fannie Mae to allow Fannie Mae to talk to the agent. Also, the agent fills out an Intake Questionnaire Form that is online in the MLS. Once that is done, the Short Sale Assistance Desk receives these forms. The final step is for the Multiple Listing Service to send the information about the case to the Short Sale Assistance Desk, which is required to be submitted within two days. The Short Sale Assistance Desk will respond to the problem within two days. The story told by Marcel Bryar, Vice President of Fannie Mae, is that the people who work on the assistance desk just pick up the phone when they have reviewed the materials and talk to the listing agent. He says the response time is usually well under two days.
Getting a response to a Short Sale problem within four days! Sounds like heaven.
What issues can be reviewed? The Short Sale Assistance Desk reviews (1) a lack of a response to the Short Sale by the servicer within certain time limits (2) issues with junior liens like Home Equity Lines of Credit (HELOC) and (3) problems with mortgage insurance.
In order to be eligible (1) the loan has to be a Fannie Mae loan (2) a signed contract to purchase the property and a complete Short Sale package must be submitted to the servicer (3) the listing agent must be a member of an MLS that has partnered with the Short Sale Assistance Desk to create this system (4) the listing agent with a Borrower Authorization Form communicates with the Short Sale Assistance Desk. Under this last requirement, the buyer’s agent or third party negotiators cannot communicate with the Short Sale Assistance desk as they want to be in touch directly with the seller’s representative.
What are the standards for this escalation? If there is no response to the Short Sale submission within 20 days, the listing agent can initiate the Short Sale Assistance Desk review. A response does not have to be an approval or a denial of the offer, just an indication that the servicer has the package and some indication of the process that will be used to review the Short Sale. If there is no property valuation done within 30 days of the submission of the short sale package, the listing agent can escalate to the Short Sale Assistance Desk. If there is no final decision on the Short Sale within 60 days of the original submission of the Short Sale contract and package, the listing agent can use the Short Sale Assistance Desk. Finally, if the loan servicer has approved the Short Sale, but there are issues with any junior liens (like HELOCs) or with mortgage insurance, then the listing agent can use the Short Sale Assistance Desk process.
What is the biggest item that is resolved by this system? Incorrect opinions on the value of the property being sold are the most frequent correction. For example, the servicer is turning down the proposed Short Sale saying that the sales price is too low. The listing agent contacts the Short Sale Assistance Desk. The Short Sale Assistance Desk looks at the data in the Multiple Listing Service and determines that the appraisal or Broker Price Opinion (BPO) is wrong. The Short Sale Assistance Desk works with the servicer to approve the short sale and the property moves on toward a sale that closes.
What is the biggest problem that the Short Sale Assistance Desk has with Realtors? They have not submitted a complete Short Sale package, then they initiate the process. If the hold up is caused by a failure of the listing agents to give the servicer the information necessary to make a decision on the Short Sale, the Short Sale Assistance Desk can help but that is a lot of work to tell the listing agents what they should have heard from the servicer. In other words, to make the system work well, the listing agents need to try to work the issues out with the servicer before initiating the review by the Short Sale Assistance Desk.
So, why isn’t this system moving multitudes of Fannie Mae short sales to a decision in record time? Because many Multiple Listing Services are not cooperating. For example, the Triangle Multiple Listing Service that covers the middle of North Carolina and the Carolina Multiple Listing Services that covers the Charlotte area do not have this system in place. This means that Short Sales in many of the properties in North Carolina cannot benefit from this system. One objection by some Multiple Listing Services is the cost of implementing the system. However, organizations like the California Association of Realtors (CAR) have a turn key set up to implement the Short Sale Assistance Desk system that is low cost.
The main objection is that some Multiple Listing Services do not want to give Fannie Mae access to its data, saying that is proprietary to the MLS. If you are old enough to remember the MLS Listing Book, you will remember how that information was proprietary to the MLS and no one could have access to the listings. I fought many battles with several Multiple Listing Services to allow my websites to display all the properties that were for sale. After years of battle, the real estate industry found that providing this information to the consumers was better for the buyers, the sellers and the Realtors. Now, hundreds of websites across America provide the consumer with every property that is for sale. Is this the same battle fought by the same old guard that is out of touch with technology and the needs of modern America?
Fannie Mae will only use this information to review specific Short Sales. In other words, the informaiton is not being made available to the public. It is only going to make the information on properties for sale and closed sales available to the Short Sale Assistance Desk. This is similar to letting a judge look at confidential information that is necessary for a court’s decision. The judge uses it only for legitimate purposes and a better decision is rendered.
You can see the complete lack of merit in this position by uncooperative Multiple Listing Services by walking through the process. Let’s say I have a short sale on the property at 123 Main Street in Cary, North Carolina. I go into the MLS and print out every property that has anything to do with the value of that property. As a member of the MLS, I am entitled to get access to that information. Next, I scan it and send it to the Short Sale Assistance Desk. That is also perfectly legal. So, I can give the Short Sale Assistance Desk everything it needs, but it is in a manner that is much more difficult to use because the printed version cannot be directly input into their automated valuation models used by Fannie Mae. If Fannie Mae had a huge number of data entry clerks, they could input my printed information and make the system work. If I can send the Short Sale Assistance Desk the same information, is there any merit to the MLS refusal to cooperate?
What happens if the MLS does not work together with the Short Sale Assistance Desk? Errors in the short sale process will not be corrected, so more Short Sales will be disapproved. Also, the Realtors will not have Fannie Mae’s assistance in negotiating with junior lien holders and mortgage insurance companies, so more Short Sales will be unsuccessful. A failed Short Sale means another foreclosure. The foreclosure is a disaster for the seller/borrower and much worse on the neighborhood. In other words, the result of the failure to cooperate by the MLS is the destruction of more neighborhoods and more harm to families in trouble. What is the benefit from this failure to cooperate? I cannot see any.
If your Multiple Listing Service has not set up the Short Sale Assistance Desk system, have its officers contact Fannie Mae by sending an email to SSAD_Information@fanniemae.com. The more MLS participation, the more successful Short Sales, the fewer foreclosures and the quicker the recovery of the housing market.
In the first edition of Create A Short Sale, Your Guide Through the Short Sale Maze, I devoted a chapter to singing the praises of mortgage insurance companies. The mortgage insurance company had helped me get a short sale approved by explaining to the servicer that the short sale created a smaller loss for the investor (and the mortgage insurance company) than the foreclosure. As a result, the short sale was approved. Those were the good old days. I had other sales where the review by the mortgage insurance company was quick and supported the approval of the short sale.
Mortgage insurance companies are involved in any sale that does not have a substantial down payment, usually 20%. They are also involved in other real estate purchases to lessen the risk to the investor. Typically, they insure the first dollar losses on a loan. Normally they will cover the first 15% to 28% of principal balance of the loan. So, if the insurance company covers 15% and the re-payment on the principal of the loan is 12% short, the mortgage insurance company covers the loss and the investor recovers the full principal balance of the loan. In contrast, if the mortgage insurance company insures 15% of the loss and the loss is 21%, the mortgage insurance pays for the 15% and the investor takes the rest of the loss. While the laws vary from state to state, it may be possible for the mortgage insurance company to pursue the borrower to recover some of the loss.
When you have an FHA Short Sale, there is almost always mortgage insurance if the borrower used the low down payment allowed by FHA. The low down payment is the primary reason that most borrowers use FHA financing, so you almost always have mortgage insurance with an FHA Short Sale. Many of the mortgage guarantee companies have given the servicers ?delegated authority? i.e. the ability to approve a short sale without further review by the mortgage insurance company if it meets certain standards. You can find the standards at https://www.efanniemae.com/lc/sir/pdf/midelauthchecklist.pdf . One of the requirements is that the borrower has to be at least 60 days delinquent and considered past due for the third payment. This requirement bothers me because it penalizes people who work hard to keep their payments current.
For buyers without sufficient down payment, mortgage insurance companies perform the valuable function of allowing those buyers to buy a home. In the good old days, they also helped Realtors to close short sales because they realized that the loss would be lessened by a short sale.
Mortgage insurance companies have gone from good to bad and ugly. John?s story will explain it all.
John owned a condo in Raleigh that was underwater. He never should have paid the original purchase price for it because it was never worth that much. However, he was from California and compared to California prices, it looked like a good deal. To make a long story short, some of the people who converted the property from a rental community to condos are doing long jail terms. Almost no one in Raleigh bought them, they were sold to out of state investors during the run up of the real estate bubble.
Because the price was too high, the loan was too large and the payments were too big. As a result, the property could not be rented for enough money to cover the mortgage payments and homeowners dues. John tried to handle the negative cash flow, but had a huge financial setback so he desperately needed to sell the property.
My team found a buyer agreed to pay the market value for the home. My team includes attorneys involved in the negotiations, so the term “we” includes them. A short sale package was submitted to Chase who took way too long to review it. That buyer walked away. We found another buyer, but John?s financial condition worsened. Finally, the file was reviewed by a negotiator for Chase who asked for a $1,500 contribution from John in order to submit the file for approval. In response, we submitted John?s latest financial statements showing he did not have $1,500. The negotiator for Chase said with the new information there was no need for him to make a cash contribution. She submitted the file to the investor who approved the short sale. Chase has good quality negotiators but a slow system for reviewing short sales, so the delay problem is not the people but it is their process.
Then, the file was submitted to the mortgage insurance company. Their review stated that John would have to make a cash contribution of $9,500. You have to enjoy their logic, since he could not afford $1,500 then he could afford $9,500. They would take the $9,500 on a note over several years, but that made payments that John could not afford. So, we took up a collection among everybody involved and raised $4,000 with the buyer, seller and Realtors all throwing in some money. We offered that to the mortgage insurance company. Most financial analysts would prefer guaranteed cash at closing to the hope that an unsecured note would be fully paid by a borrower who is broke. The mortgage insurance company refused the offer. At first, they said the $9,500 was non-negotiable, regardless of whether the payment was cash or a note. Anyone who buys and sells notes knows that makes no sense, notes are sold way below the face value for cash.
We took up another collection and increased our offer to $5,500. I will spare you the details, but after much gnashing of teeth, we got it approved by decreasing the amount
The process took so long that Chase started a foreclosure proceeding. When the foreclosure notice hits the front door, the tenants stop paying the rent. So, John was in even bigger trouble. We got the tenant out, but the security deposit was depleted before it could be used to fix the damage done by the tenant. So, we had a buyer who had been forced to pay top dollar for this unit. When he did an inspection, he got a discount inspector who wrote up all sorts of items to try to show that he was as good as the inspectors who charged the market rate. Some of the items I could get fixed under the home warranty that I put on the property. But, others were not covered. For example, the report said the sink in the hall bath did not work. I ran it and it worked fine. In short, the buyer believed that the cost of the repairs justified a $5,000 reduction in the price. That would not work for Chase, the investor and the mortgage insurance company. The investor would take less, but the mortgage insurance company would not budge. So, the buyer walked.
I found a first time homebuyer who really wanted this one bedroom condo, because he could buy it for around $70,000. It was in the Brier Creek area, a prestigious section of Raleigh normally associated with an Arnold Palmer golf course community, fine restaurants and quality shopping. My team cleaned and repaired it with our own hands. We fixed everything that could be fixed under the warranty. The buyer?s girlfriend loved it. His mother wanted him to hold out for a better deal, but went along with the program when we showed her all the numbers. The buyer got his father to co-sign on the loan. My team resubmitted the short sale with the new buyer.
It took a great deal of re-structuring of the short sale proposal to get the numbers to work out so that the mortgage insurance company would get its $5,500. The proposal was explained in detail in an email directly to the negotiator, with less to the investor and more to the mortgage insurance company. However, there is only one way that Chase allows for a review of the short sale, so the approval we got did not match the structure of the sale that we submitted. In short, we needed even more money.
In the meantime, the actual sale date for the foreclosure was set. Freddie Mac, the investor that owned the loan, was tired of postponing the sale. The buyer called Chase and talked to everone he could. I called several levels of reviewers at Chase. I work regularly with the law firm that was handling the foreclosure and got the managing partner to assist in requesting that the sale be postponed. The sale was set for Monday. Friday afternoon, Freddie Mac refused to postpone the sale.
Monday morning, the effort started all over. We had to accept the short sale approval from Chase even though it took more money, because there was no way to postpone the foreclosure without the promise that the approved short sale would be completed and closed soon. With a little over an hour to spare, Freddie Mac allowed the sale to be postponed, authorizing a delay of 45 days. Forty five days is plenty of time to get a loan, so I had nothing to sweat about, right? Wrong
The notice from the law firm postponed the sale about 20 days. Can you say heart failure? North Carolina?s foreclosure procedure allows a sale to be postponed only so long without re-publication and certain other procedures that require a payment of several hundred dollars. Twenty days was all they had left. I tried to get the buyer?s lender to be ready to close before that sale date. When she sent out a series of emails asking for unnecessary items and misunderstanding the terms of the transaction, I knew that was not going to happen. This conclusion was reinforced when she did not return any of my phone calls. Unfortunately, the buyer had gone with a person at BB & T who was recommended by a friend instead of the person I recommended who had previously done several of the complicated loans that this condo complex requires. The buyer was fabulous, he would drop everything and deliver documents, pay stubs and anything else the lender wanted along with pies and gifts to encourage the lender?s team to hurry things along. If you want to see him, look at the video on the Buyer tab of the CreateAShortSale.com website.
Thank goodness Chase managed to get the additional payment to the foreclosure lawyers approved and the foreclosure sale postponed again. There is one positive result from this experience. I get to return the favor to that lender at BB & T by not returning her calls when she tries to get more business from my team. The other lender I recommend at BB & T has closed several more loans at this complex, so ?what goes around comes around?.
We have a short sale approval. We have a foreclosure delayed. We have the buyer?s loan approved. All we lack is enough money to close the sale because I know we cannot go back to Chase and the mortgage insurance company to get a revised approval. Everyone else was pushed to the limit, so I covered the rest of it. The other choice was to sacrifice John to a foreclosure and the first time homebuyer would not get the home he and his girlfriend loved. That choice would pay me nothing, get me no referrals and it would not help me stop the foreclosures in that neighborhood.
So, the sale closed, I made a little money, John was rescued and the buyer has become one of my strongest supporters and his mother loves me. My wife and I are going to his new home to have dinner with the entire family just as soon as he finishes the repairs. If we did not have a slow review by Chase and unreasonable requirements by the mortgage insurance company, I would have closed this sale more easily and made a much larger commission. However, I would not have this new client who is a raving fan of my team.
Does the Seller Need to Be Behind on Mortgage Payments?
Years ago, I gave a presentation on Short Sales to the CyberStars, a great group of high tech Realtors. One of the members of the audience said, ?Of course, to start a short sale, the seller has to be behind on their payments.? This is a common thought. In general, that is not correct. The majority of the short sales I have done involve sellers with high integrity who will make their payments if there is any way to do so. So, the majority of my short sales involve a mortgage where the payments are current.
There are exceptions to this rule. There are some servicer guidelines that state the borrower/seller has to be delinquent in the payments in order to qualify for a short sale. That makes you wonder about the wisdom of that rule.
A short sale is supposed to give a borrower a way out of a bad situation that does less damage to a credit report that a foreclosure. If the borrower is willing to ignore the obligations, the lender will foreclose. Why require the borrowers to damage their credit by missing payments in addition to the damage done by the reporting of the short sale.
In one situation, I understand the reason for the rule. Fannie Mae has many of its loans in Mortgage Backed Security (MBS) pools. In order to get the loan out of the pool and do a short sale, the loan has to be non-performing. The easiest way to be non-performing is to fail to make a monthly payment. So, many loans where Fannie Mae is the investor that owns the loan require the borrower to be one month behind on the payments.
If you understand the mechanics of the review process, you can minimize the damage to the seller. The point in time that the loan needs to be delinquent is when it is approved by Fannie Mae. It does not need to be delinquent from the beginning of the review process. If the servicer tells you otherwise, contact Fannie Mae and ask to talk to a level two supervisor.
So, do not have your seller miss a payment until the short sale is ready to submit to Fannie Mae for its approval as the investor. The payments can be made during all the time you are waiting for your package to be placed on a negotiator?s desk and most the time for the review by the negotiator. Just be 30 days late when it is on the desk of the Fannie Mae representative.
Freddie Mac Home Affordable Foreclosure Alternative (HAFA) Short Sales require the borrower (seller) to be delinquent in the payments by 60 days. The only logic I can see in this rule is they want to see that the seller is really desperate as shown by the inability to make the payments.
In North Carolina, the foreclosure proceedings can be started when the borrower is 60 days late. So, you apply for a Freddie Mac HAFA Short Sale when the foreclosure proceedings start. Freddie Mac regulations allow the servicer to take 45 days to review the HAFA application, and that time limit is frequently exceeded. The HAFA regulations say the actual foreclosure sale cannot occur while the servicer is considering the HAFA application, but the foreclosure department can proceed with all the other steps leading to the sale. If the HAFA application is denied, then the foreclosure can take place.
In order to be considered for a Freddie Mac Short Sale, you have to put the seller right on the edge of the foreclosure sale. That puts the Realtor in the position of suggesting that the sellers allow themselves to be dangled over the edge of a cliff with the hope that they will be rescued in the nick of time.
Then, there are the situations where the servicer incorrectly advises the seller that they have to be behind on their payments. I had a seller who applied for a HAFA short sale where the loan was owned by Fannie Mae. The servicer said that the borrower had to be 60 days delinquent. I protested that was a Freddie Mac rule, not a Fannie Mae rule. The servicer did not care and closed the file. The level two supervisors at Fannie Mae confirmed that I was correct, but the file was already closed.
Bank of America re-opened the file and I had to submit all the information through Equator again. Bank of America?s procedure requires the borrower to call Bank of America part way through the HAFA review. When the seller made the call, the Bank of America representative told her first she qualified for HAFA, then checked and said she did not, then checked again and said she did, then checked again with the only accurate statement that she was unsure whether she qualified or not. When the seller called back the next day to get some clarification, the Bank of America representative said she would take her information to consider her for their Cooperative Short Sale before passing her on to a representative who could give her a clear answer on her HAFA qualifications. When she was connected to the HAFA representative, she was told that since she applied for the Cooperative Short Sale,that terminated her HAFA application. Right now, we are waiting for the Cooperative Short Sale package that is being snail mailed to see if its terms will give us what we need.
In short, it may not matter whether the regulations require the seller to be delinquent. If the servicer thinks they need to be delinquent, that is enough to result in the file being closed and the short sale delayed.
As a matter of policy, sellers should not be required to be delinquent on their loans. The sellers who takes a second or third job to keep the mortgage payments current should not be penalized while a seller who does nothing is rewarded. My understanding of the pillars of the American economy is that the people who honor their commitments and make their payments should be rewarded, not punished.