Select The Right Closing Attorney or Escrow

March 12, 2009 by  
Filed under Short Sale Do's & Don'ts

angie-turner2-70x70Closing a short sale takes more talent than closing a regular sale, so it is critically important that you use a closing attorney or escrow officer who has experience with the requirements of a short sale.

Angie Turner is one of the best paralegals in North Carolina. She is with Clifton and Singer, one of Raleigh’s premier firms in the field of real estate law. I asked her to write about the difference between closing a short sale and a regular sale. While she follows the terminology in North Carolina with closing attorneys, you can substitute the term escrow officer for closing attorney in other parts of America. Here is what she has to say:

Short sale transactions are very different from standard closings. They require real estate professionals that understand the process, that can negotiate with the bank, and that can coordinate with multiple parties to complete the transaction. One of the important parts of the short sale package that is submitted for the lender’s review is a draft HUD statement, in other areas called a closing statement. The lender will determine whether to accept the short sale based upon the amount of the payment to the lender shown on the draft HUD statement.

The closing attorney’s responsibility is to provide fair and upfront pricing for the seller’s side of the draft HUD statement. While the pricing for the seller’s side of the draft HUD statement is estimated, the estimates must be as accurate as possible. Estimating the seller’s fees is often difficult due to the lack of a closing date and other variables. If the seller or closing attorney is in doubt about the estimated fee, the closing attorney’s office should err on the high side because the bank will be unwilling to accept a higher fee later. In other words, if the bank settles for a certain amount as a full payoff of their loan, you do not want to go back to them with less money being paid to the bank than what was shown on the draft HUD statement.

The closing attorney?s office is also responsible for making changes to the draft HUD statement and submitting it to the bank and Realtor. Often the HUD statement will be changed 15-20 times before the bank agrees to the short sale.

Once the negations are completed, the closing documents are signed, and the keys have changed hands, the closing attorney?s job is far from over. In order for the seller to give good title to the buyer, the deed of trust securing the loan must be canceled of record. The

loan(s) paid off in a short sale transaction have numerous stipulations and precise instructions that must be followed exactly before the bank is willing to cancel its deed of trust. Since the bank is taking less that a full payoff, they are even more difficult on the requirements for eliminating the lien on the property that was sold. Therefore, after closing, the closing attorney is still working with the bank and meeting its requirements to ensure that the deed of trust is successfully cancelled.

Due to the additional requirements in completing a short sale, you will need to choose a closing attorney that is knowledgeable in short sale transactions. You need a firm that is willing and able to work with you and the bank before you have even scheduled a closing. For example, even before you have a sale approved, you will need to have a draft HUD statement to estimate the proceeds to the bank. Also, you need a firm that will follow through with the numerous detailed tasks that occur after closing.

Thank you, Angie, for your explanation of the requirements for closing short sales. If you are closing a short sale with me, the closing will be at Clifton and Singer to avoid the disasters that can occur with firm that has not done many, many short sales. My Short Sale Addendum includes a provision that the closing will be with Clifton and Singer because it protects all of the parties to the sale.

Do an Accurate Closing Statement

March 10, 2009 by  
Filed under Short Sale Do's & Don'ts

hud-70It is all about money. The bank is trying to minimize its loss by taking a short payment as a better choice than any alternative. So, how much will they get? The contract will not reveal the net proceeds. So, the bank wants a closing statement.

I used to send a Net Sheet for my sales in California, because many of the escrows do not use the standard HUD-1 closing statement. When Bank of America rejected an offer three times because the package did not include a closing statement that they could easily spot, I learned my lesson. Give them a HUD-1, that is what they are looking for.

This started my second educational step on the HUD-1. We bought software to create a HUD-1 and did them ourselves. When we missed a couple of the charges that should have been figured more accurately, the shortage came out of my commission.

The third education came from unexpected costs that came up at the last minute. The approval by the lender states that they will accept an exact amount of money, provided it is paid on or before a certain date, and provided that certain other conditions are met. When your payment from the closing does not meet that amount, you have two choices. The first is to try to get the bank to renegotiate and reduce the amount they will accpet. The second is to find the money somewhere else, which is usually the Realtor’s commission if the buyer will not put up the difference. When there is not enough time to get a reconsideration by the loss mitigation negotiator, the choice of taking it out of your commission is the only one that works.

So, figure the HUD-1 with some margin for error. Figure the costs high, to set the lender’s expectations low. Put in some items that may not be absolutely necessary. If you get to the closing and there is more money for the lender, there is no problem. If you get to the closing and unexpected costs come up, you may have them covered by the other items that you can adjust. Even if there is not enough “play in the joints” to absorb every unexpected cost, you will take less of a hit to your commission. If you get the lender to expect less and you end up paying the bank more, they will be happy.

First, create a HUD-1, not a net sheet. Second, have it created by the professionals who will comprehensively include every imaginable cost. Third, figure it so that the payoff aims on the low side for the bank, so that surprise costs will be covered and your short sale approval will still be valid.

What’s in a Short Sale Package?

March 10, 2009 by  
Filed under Short Sale How To

package-70x70You want to make the entire short sale package extremely easy to review, because you are presenting it to a loss mitigation negotiator who is overworked and underpaid. Look at the entire package from the negotiator’s point of view, and make it easy to recommend it for approval. If you put in everything necessary, in a format that is easy to review, you are much more likely to get an approval. For example, put the loan number on every page of the package. It is an administrative pain for you, but it is a sign of courtesy for the negotiator who will know that you are experienced and considerate. This will also prevent some of your papers from being lost. Similarly, include a recent mortgate statement from the lender so that the loan is easy for the negotiator to identify.

Find out what this lender wants in the package and give them everything they want, and no more. Some of the lenders put their requirements online, like the package for EMC. Compare this to what Aurora requires by clicking here . Bank of America does not want all this stuff, as they get too many short sale applications for the size of their staff. They ask for a HUD-1, financial information on the seller, a hardship letter and a letter authorizing them to talk to you. Other lenders will send you their requirements by fax or email. Still others will play “guess again” by telling you to send in a package, then telling you that you did not send in what they wanted. Let’s look at the items normally required in a short sale package.

I start my package with a trial brief that begins with a summary of what is in the package and points out why every element submitted supports a short sale. At the end of this trial brief, I include any problems with the property that make it evident that the lender would not want to foreclose on the property. The most dramatic are mold, toxic material, a former meth lab and dangerous illegally built structures are all hazards that the bank will not want to have to sell, because even though they sell a foreclosed property “as is” the bank will still get sued. My favorite was a series of illegal retaining walls nearly three times the height allowed by the zoning regulations that were so poorly built they were leaning from the weight of the illegal grading heaped on them. If you have these items, include some compelling presenation, such as pictures or bids for the cost to remedy the problems. In other words, this trial brief frames the review and leads the negotiator to the conclusion that approval of the short sale is in the lender’s best interest.

The most important part of the short sale package is the hardship letter, so I put it before all the other materials to set the tone of the review. It is so important that it is covered in a separate post “Do a Compelling Hardship Letter.”

The next part of the package concerns the offer. I put in a one page summary of its essential terms. The negotiator deals with contracts from all over America, so do not make them dig out the essential terms from a long contract. Include the entire contract, and make sure it is completely executed by all parties. You are dealing with administrators who check every signature and set of initials. I have even had ASC, the lender, say they would not accept electronic signatures on the contract in the short sale package even though the closing attorney said electronic signatures were legally valid.

The loss mitigation negotiator gets the best understanding of the offer from the HUD-1 settlement statement. It must show the estimated payment to the lender i.e what you want the bank to settle for. I put a large arrow by that number to make it easy for the reviewer to find it. The tips for preparing the HUD-1 are covered in a separate post “Do an Accurate Closing Statement.” An essential part of the presentation of the offer is a pre-approval letter showing that the buyer is sure to get the financing. The loss mitigation negotiators are sensitive to the recent trend of short sales being approved for deals that do not close. So, prove that this one will close. For cash buyers, include a letter from the bank manager saying the cash is in the bank, or a bank statement showing a balance large enough to close.

The next part of the package deals with the marketing of the property. The negotiator needs to know that the property was fully exposed to the market. Enclose a copy of the listing agreement. Since the new Fannie Mae policy says that the banks should not cut a commission so long as it is not above 6%, I would suggest a commission not to exceed 6%. A summary of the history of the listing helps by showing the date listed and the original listing price, then the date of any price reductions. If you started marketing the property at a price that would pay the bank in full, point that out to indicate that you tried to get the lender fully paid, but the market would not support that price.

The next group of items concern the financial qualifications of your seller. The bank will normally want their own financial statement filled out. Since the negotiator is used to reviewing that form, it is much easier to review the bank’s form instead of your form. You want the financial statement to show that the seller is not able to cover the monthly expenses, so that the negotiator will conclude that the seller cannot afford to keep on paying the mortgage. If the seller is self employed, you may need to send two years of tax returns. Some banks will want tax returns even if the seller is not self employed. Be susre to include all the schedules that are part of the tax return. Normally, the last two pay stubs are required for a seller who works for a firm, while a recent profit and loss may be required for a self employed seller. Be sure to check to see how many pay stubs covering what period of time the lender wants, and avoid delays by getting it right the first time. This part of the package finishes with the last two month’s bank statements, or however many statements the lender requests. Be sure to discuss any large deposits on those statements, particularly if the seller took those funds out of a retirement account. You do not want the negotiator to get the wrong impression that there is a large income when there is not.

You should have sent in the letter of authorization for the bank to talk to you before you send in the package, so that it can be reviewed and approved. Include another copy with the package to make it easier for the negotiator.

Remember the rule about not submitting anything the lender does not request? You break that rule if you have good market statistics in a graph or other visually compelling medium that show the market is declining rapidly.

Most loss mitigation departments will require you to fax this entire package to a particular number. Set your fax on Fine, so the quality of the documents is better. Also, you may have to fax in the middle of the night to avoid a constant busy signal. If you have a problem getting the fax to the loss mitigation department, ask to talk to a supervisor then see if you can fax it to her fax machine.

Whatever you do, send the entire package by mail, with a signature required. They may tell you they only accept the package by fax, but mail it anyway. You want the signature to prove that it was received. My record is faxing a package four times to ASC, having confirmation from my fax machine that it was received each time , only to have them claim it was not received. If they know there is proof of receipt, you will avoid this problem.

Providing a complete short sale package makes it much more likely that your offer will be reviewed more quickly and greatly increases you chance for lender approval.

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