Short Sales are Getting Shorter in the Triangle Area of NC

August 12, 2012 by  
Filed under Short Sale How To

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.

Short Sale Abuse

March 31, 2009 by  
Filed under Short Sales Stories

abuse of short saleUnfortunately, there are people who will try to take advantage of other people’s misery in a real estate short sale. I get emails daily by “coaches” who want to sell me a program of how to short sale a home in order to make money off shorts sales in a manner that I find distasteful. This is not the kind of Realtor training that I want to be involved in.

The schemes have two basic approaches for the property for sale, one by using an option to purchase and another using a trust. Basically, they start by teaching their students to find people in trouble with houses for sale, then put those people in even more trouble. I do not think it is right to do that to one of my neighbors in Raleigh, or anywhere in North Carolina.

The student is supposed to approach someone selling a home who needs to short sale their home and tie up the property using an option or a trust agreement. In other words, the student looks for a MLS listing that should sell for $200,000 and makes an offer of $160,000 to a family that is desperate to sell. Using the option, the student pays as little as one dollar to have the option to purchase the home, and gets the owner to sign the contract. Remember, this is an option to purchase, not a promise to purchase for a traditional sale.

The student submits a short sale package to the lender, saying that they are paying a reasonable price. At the same time, the student puts the home back on the market, tries selling the home for $200,000 or more. If the student can get the mortgage loss mitigation department to take a short payment based on the price of $160,000 and if the student can find another buyer to pay $200,000, then the student exercises the option, buys the property and immediately resells it for a profit. In short, the holder of the mortgage does not get the payoff it deserves, the property owner does not get to the equity they deserve, and the student takes the money that should be paid on the home mortgage. In stead of loss mitigation, this is loss maximization for the lenders who make mortgage loans.

So, what is wrong with that? If all the other parties are willing to let the student take advantage of them, why shouldn’t the student profit?

Lets analyze a completed sale first. The student is telling the holder of the home loan that they are paying off as much as possible of the loan on the home. Also, the student may be leaving the people with homes for sale with the obligation to pay the balance of the money that is not paid on the home mortgage. The owner of the home may also have an obligation to pay income tax on the amount that the payment to the bank is “short”.

After the sale closes, there will be some mortgage lender that will take a simple look at the tax records and see that the home sold for much more than the lender saw on the HUD-1 or closing statement. Then, the mortgage lender will get its lawyers to work to recover the ill gotten gains, as well as any other damages they can claim. The government prosecutors may get involved to teach the student what happens when you mislead institutions that make home loans.

Next, let’s analyze sales that do not close. In today’s market, a well priced home sells, an overpriced home does not sell. When the student raises the price to try to make a profit, the chance that the home will sell decreases dramatically. The family that owns the home is expecting a normal home buying experience, possibly hoping to stop foreclosure when the student buys the home. That family gets an education on the difference between an option and a sales promise when the property does not sell. When the student does not get another buyer to pay an inflated price, the student leaves the option money behind and does not buy the home. In many of these schemes, the option money is one dollar. So, the family does not get to stop foreclosure, they get to endure a foreclosure sale, and have one dollar for all the heartache they went through. Also, America gets more foreclosure homes.

I have a hard time with teachers who tell students to find people who are begging for a life preserver to keep them afloat. Then, they teach the student to throw them an anchor that is disguised as a life preserver that will drag them under. These teachers have stories about a few of their students who have made large amounts of money taking advantage of uneducated sellers and mortgage lenders that are so desperate for cash that they will approve a low short sale. This is not how you do a real estate short sale, this is how your increase your chance of a foreclosure. We should provide Realtor training to prevent foreclosures.

When someone approaches you with a scheme like this, just remember “thou shalt not steal.”

Don’t Have Short Sale Moving Problems

March 31, 2009 by  
Filed under Short Sale Do's & Don'ts

moving-van-for-short-sale-closingIn a real estate short sale, you have a seller with no money who needs to move out of the property. As a part of Realtor training that I have done for agents in Raleigh and Cary, North Carolina, we have to discuss how moving costs money, and have a plan for the proper thing to do.

The best answer occurs when the home mortgage lender allows some payment to the seller at the closing of the home sale that can be used for moving expenses. Some payment is permitted under the HUD Preforeclosure Sales Program to the seller, a sales program used to stop foreclosure and allow the mortgage loss mitigation of a short sale to replace a foreclosure sale. In general, the seller gets $750 at closing. If the property sells quickly, the seller gets $1,000. This money can be received in cash at closing and used for anything the seller wants, such as moving expenses. The seller will also be reimbursed for the cost of the appraisal and title search required by this program and a portion of the legal fees incurred. So, the seller can get some additional money back at closing, even though the seller does not fully pay off the mortgage loan.

Some short sale agents tell the buyer to pay money to the seller outside of the closing, or outside of escrow, so it does not show up on the closing statement. One of the requirements for short sales is that all parties have to certify to the lender getting the short payment that the seller is not getting anything out of the sale. I disagree strongly with having the buyer hide the payment to the seller as you are deceiving the home mortgage lender, and I do not think you want trouble with the home loan authorities as a part of the home buying experience Yet, I have been on a Realtor training webinar where the participants discussed this approach. Be careful who you listen to, they may get you in trouble.

There is another seminar leader whose Realtor training is to pay the seller $2,500 for work the seller is doing as a part of selling a home. The examples given are that the seller does the open houses and other work that the agent would otherwise have to do to market the short sale home. So, the agent is merely paying the seller for work that the seller is doing on the agent’s behalf on the property for sale. I have paid other agents to do open houses for me on houses for sale, but the compensation has been around $100. It could be argued that this may have some merit, because it is a payment for services rendered and the mortgage lender may see that there is some way that the payment can be justified, so they may choose not to challenge it. However, this a risky way of selling a home, as the amount of the compensation is out of proportion to the work done. Also, there may be regulations in your state that prevent a Realtor from paying someone for doing work that requires a real estate license. You could take this idea and modify it to pay the seller a reasonable amount for some useful service, particularly a service that does not require a real estate license, then you can justify the payment as a reasonable business arrangement that is not related to the property for sale.

So what do you do to avoid lying to the home mortgage lender? There should be no problem if you want to take the idea above and pay the seller for work done, and pay a reasonable amount for whatever service the seller provides in a field that does not require a real estate license. I have paid agents to hold open houses at my listings in Wake Forest and Rolesville, North Carolina. It would not be that much different if I paid the seller, so long as the payment was properly disclosed.

My favorite approach is to look at the problem in a different light. The problem is the furniture, the cost of moving it and the cost of storing it. So, eliminate the problem and raise cash at the same time. Sell the furniture as a different approach to loss mitigation. There is nothing that prevents the seller of real estate from selling any asset they may have to raise money, including the furniture. Separate from selling a home, just sell the furniture to anyone, and there are auction companies that specialize in selling a home full of furniture. You can also put in your MLS listing that the furniture is for sale. Even if the buyer wants to buy the furniture for a reasonable price, there is nothing I can see that is objectionable. The buyer gets fair value, the seller gets some money, and the seller does not have to pay for the moving and storing of the furniture that was sold.

There is another solution that is relies on the goodness of the community. Particularly where I live in the South, there is a principal of helping people who are down on their luck, particularly a family facing foreclosure. The church members will help the seller move. The relatives will take them in. Other community members will pitch in to help get the family resettled, or take care of the yard after the seller moves. See if you can find other resources to help out the seller so that you are not tempted to mislead those who make mortgage loans.

This is a recurring problem and there are solutions that will not get you in trouble.

HUD’s Preforeclosure Sales Program Avoids Foreclosure

HUDHousing and Urban Development (HUD) has a Preforeclosure Sales Program that will allow a homeowner in default on a HUD mortgage to prevent a foreclosure and sell a home, even if it results in a short sale. To read all the details of this program to avoid foreclosure, click here

The short summary of the program is that owners who are 31 days or more late on mortgage loan payments on certain loans related to HUD can contact HUD to start the process. They will fill out applications and get a Information/Disclosure form 90035 mailed from HUD. If the owner is approved for the program, they receive an Approval to Participate notice from HUD. The owner must then list the property with a Realtor, who is not a relative for an arms length real estate sales effort, including an MLS listing. This sales program gives the owner four months to get a contract to sell the short sale home, and the sale must close within 6 months of when the owner is accepted into the program (or 8 months with special qualification) . During that time, the home mortgage lender will stop foreclosure.

As a part of selling a home using this program, the owner will need to get an FHA approved appraisal to establish an “as-is” value. Then, the owner can place the property for sale, sell for less than the appraised value. and use the proceeds to pay as much as possible on the home loans. The amount of the allowed sales price goes down as time goes on. During the first 30 days on the market, the sales price has to be at least 88% of the appraised value. In the next 30 days, the sales price can be at least 86%, and for the rest of the program it has to be at least 84% of the appraised “as is” value. This approved sales price creates a quick form of mortgage loss mitigation, as the loss mitigation department should give a quick approval to any offer that meets these guidelines.

As a part of the sales program, the owner may receive some portion of the sales proceeds, which is extremely unusual for short sales because the seller is typically required to walk away with nothing. If the home sale is closed within 3 months, the incentive is $1,000 and it decreases to $750 after that. The program has an additional $1,500 that can be used to pay off any junior mortgage loans after the incentive payment is applied, i.e. to pay off a second trust deed loan or a home equity loan.

The program allows the seller to pay up to 1% of the sales price as a payment toward the buyer’s closing costs which is also unusual for short sales. In order to encourage good marketing, this program to prevent a foreclosure sale allows a real estate commission of up to 6% of the sales price, which is consistent with the new Fannie Mae policy on reasonable commissions in real estate short sales.

This program applies only to owner occupied homes for sale. If it is an investment property, or a property abandoned by the owner, those houses for sale do not qualify.

For homes that qualify under the Preforeclosure Sales Program with home loans associated with HUD , you can do a sale that is up to 16% below the appraised value and those proceeds will be approved to satisfy the HUD related mortgage loans. There is no restriction on how short the payment is in comparison to the mortgage balance, just a limit on how low the price can be in relation to the appraised value. So, if the mortgage balance is above the appraised value, the sale could be well over 16% “short”. In other words, you can get this short sale approved easily by the loss mitigation department if you comply with the procedural requirements established by HUD.

This program is a little know part of the Realtor training of how to short sale a home, but it decreases the number of foreclosed homes and gives the buyer a smooth home buying experience.

Do Price the Home Like Goldilocks

March 13, 2009 by  
Filed under Short Sale Do's & Don'ts

goldilocks-70Goldilocks found that one item was too hot, another was too cold, and one was just right. The pricing a short sale listing needs to follow the Goldilocks principle, not too high, not too low, but just right.

If you price the house too high, you will not get showings and offers. To get the short sale process started, you normally have to present an offer to the lender. There are some lenders who will pre-approve the seller’s qualification for a short sale, but that is in the minority. So, you need to price well to get an offer.

You might have to ignore this rule briefly, depending on the lender you are working with. Some lenders want to see that you tried to get them fully paid. In other words, they want to see that the listing price started at a figure that would give enough money to fully pay the lender. If the market tells them there is no way to get that amount after you tried, they are more satisfied that it is the market, and not the Realtor, who is forcing them into a short sale situation. If you have to do this, leave the price high for a while, then drop it. How long is a while? That depends on whether you are facing foreclosure or not. If not, a while is a couple of weeks. If foreclosure is looming, you might want to skip this altogether, or price it high for a few days.

Why not price too low? You want to get an offer to start the short sale process, but if the offer is outrageously low the lender will not even open a file to review it. Also, if you do not generate an offer that is close enough to the market value for the lender to accept, you will not get the lender approval so you will not close the sale. Generally, most lenders will take 90% of the market value from a Broker Price Opinion (BPO) or an appraisal, although some will go as low as 80%. In some markets, the buyer’s agents will not bring you offers above the asking price. So, your low price generates offers that are too low and you do not close.

What is just right? You want to stand out below the price of the other homes for sale, because you will have to give the buyer an incentive to go through all the difficulties of a short sale. What it takes to stand out depends on your market. In Raleigh, a 5% discount is enough to get the buyer’s attention. In other markets, it may take more or less, depending on the inventory of homes for sale.

There is an exception to the Goldilocks rule. If you are facing foreclosure, do whatever it takes on the price to get an offer. Some lenders will not proceed with a foreclosure if they see that the home is being aggressively marketed and they will keep the property in the loss mitigation department. But, once your file is transferred to the foreclosure department, the lender goes full speed ahead to foreclose. The foreclosure department’s mission is to either get the loan fully reinstated, or to sell the property on the couthouse steps. The only thing that will stop the run away train heading toward foreclosure is an offer.

On one property in Raleigh, I was trying to sell it around $450,000. When the foreclosure notice came out, we dropped the price to $425,000 and got more showings but no offers. So, we dropped it to $400,000 and got multiple offers that bid the price back up to $420,000. If you want to see how to get multiple offers to bid up the price, go to www.CreateAGreatDeal.com. Without an offer, the home would have been foreclosed.

Which side to your err on? Go toward the low side in pricing instead of the high side. It is better to have offers to submit, and get a counter offer from the lender, then try to get the buyer to accept the lender’s counter offer than to have no offers at all. One monkey wrench in this plan is the occasional lender that will just turn down your offer without a counter offer, leaving you with nothing to present to the buyer. Luckily lenders are getting smarter in short sales, so they are doing this less.

“Don’t Cut Commissions” – Fannie Mae

fannie-mae1These are some of the most beautiful words in the Fannie Mae Servicing Guide:

Effective March 1, 2009, closing of preforeclosure sales may not be conditioned upon a reduction of the total commission to be paid to real estate agents to a level below what was negotiated by the listing agent with the borrower, unless the fee exceeds 6 percent of the sales price of the property in aggregate. Servicers are reminded that they must continue to obtain any approvals that may be required by interested third parties in connection with preforeclosure sales. (Part VII Section 504.02)

You need a translation from Fannie Mae speak to Realtor language. Preforeclosure is Fannie Mae’s term for a short sale. As long as the total commission is 6% or less, Fannie Mae as the investor is directing the servicer to leave the commission alone.

I have grabbed the microphone at REOMAC meetings to question the practice of cutting Realtors commissions. I have button holed Fannie Mae and Freddie Mac executives to discuss this practice. I lead an ovation for the Freddie Mac executive on a Short Sale panel who said they did not want the practice of cutting Realtor’s commissions to be allowed. I questioned a short sale panel that was so proud of paying a closing attorney extra money when the attorney worked to help loss mitigation, yet they condoned cutting the Realtors commission, and objected to me getting paid when I advised Realtors how to work their way through the short sale process.

Fannie Mae has said that Realtors are not to be treated like dogs.

Why is this important to the homeowners? Because it is the Realtor who is taking on the challenge of selling the home, getting the buyers to put up with the delays in a short sale review, and negotiating with all the lien holders. If the Realtor knows that the commission will be cut, they are much less likely to take on this task that is much more difficult than a traditional sale. If the Realtor knows that they will be properly compensated if the sale closes, there will be many more short sales with their benefit to the borrower, the lender and the neighborhood.

In an individual case, the bank will make more if it steals some of the Realtor’s commission. That is what CitiMortgage did to me in the short sale of a property on Crest Road in Rancho Palos Verdes, California. By negotiating in a questionable manner, they withheld approval of their short payoff until everyone else was up against a foreclosure deadline. Then, they would only approve a much larger payoff than allowed by the first and the second loans, so the only way to accomplish that was to have the Realtors pay CitiMortgage. Their negotiating trick left no time to get the situation corrected. In this one situation, they made more money. I have not done a short sale involving Citi since. Also, I disclose this experience to any Realtor that I educate on short sales. I will not do a short sale where Citi is involved unless they are representing a loan where Fannie Mae or Freddie Mac is the investor.

So, Citi made $25,000 more in this one situation. I will bet that they are losing many other short sale opportunities, where their total loss dwarfs the one time savings.

Fannie Mae has done an excellent job of emphasizing the long term benefit of short sales and eliminating the short term gain of stealing one commission. If Realtors know they will not have a commissionectomy, it is much more likely that they will do short sales.

Thank you Fannie Mae.

Contacting the Short Sale Negotiator

February 27, 2009 by  
Filed under Short Sales Stories

chris-laurenceThere is a lot of aggravation amongst Realtors about getting to ?speak to the horse?s mouth? when handling offers on short sales. As long as events occur like my recent experience, the problems will continue.

Over the weekend, I received an offer on my short sale listing. The Sellers were already approved ?in principle? for short sale, and GMAC Mortgage had full authority to talk to me as the Realtor for the seller. However a couple of weeks ago, the sellers had been told that foreclosure proceedings had re-commenced.

First thing Monday, I called the Loss Mitigation helpline and found myself speaking to a young lady who didn?t seem to even comprehend the broad concept of ?Seller?s Realtor ? offer ? where do I send it? ? need to postpone foreclosure?. I asked to speak to a supervisor. The Supervisor was clearly a ?phone supervisor?, not someone who could speak knowledgably about the process. I was given a fax number to send the offer, but told that it would be several weeks before the offer would be ?analyzed?, and several weeks before they would consider stopping the foreclosure process. I asked to speak to a negotiator and was told that I couldn?t because I had to wait those several weeks until the offer had been analyzed. When I explained that several weeks would be too late to stop the foreclosure, the supervisor stated arrogantly ?then we will have to take that chance?.

In other words . . . the loss mitigation helpdesk did nothing to help the borrowers or GMAC Mortgage. A less experienced or determined Realtor may have given up at that point and told their seller that it was too late.

I faxed the offer complete with a lot of other information (full listing details and history, estimated net proceeds, CMA, commentary on the market, etc) and sat back and prayed. The next day, within 24 hours, I had a complete and comprehensive email giving me a contact name with full contact details, a confirmation that the foreclosure had been postponed, a statement that BPO?s had been ordered, and a clear timeline for the entire process. Excellent!! Exactly what I wanted. This renewed my confidence in GMAC Mortgage and the system.

The PROBLEM is that the Loss mitigation helpline did not reflect any of that. The original person who answered the phone had no clue, and the supervisor gave wrong and misleading information. THAT is where the problem is.

I appreciate that these helplines are swamped at the moment, but they have to develop a way of quickly and efficiently sifting out the genuine offer that needs action, from the ?general inquiry?, and quickly pass that call to a knowledgeable and experienced person who can fully explain what is required and what will happen, so that they can put Realtor?s and borrowers? minds at rest. GMAC Mortgage, are you listening?

Our thanks for this post that was added by Chris Laurence, a Realtor in Front Royal, Virginia (near Washington D.C.). To contact Chris go his website

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