Negotiate Short Sales Better: Find the Investor

August 9, 2009 by  
Filed under Short Sale How To

Money Shirt 70

Short Sales Need Artful Negotiating

Negotiating a short sale requires an understanding of the process. When you submit the short sale package, you are dealing with a servicer, who collects the payments and administers the loan. They do not have as much “skin in the game” as the investor who owns the loan. So, you need to be able to involve the investor to get the right result.

How do you find the investor? You can ask the servicer. Sometimes they will not tell you if you ask “who is the investor”? However, some servicers like Bank of America have rules that if you ask a question that can be answered yes or no, they will answer. So, ask if the investor is Fannie Mae? If no, ask is the investgor Freddie Mac? You might get lucky.

The Internet provides an abundance of information. To see if the investor is Freddie Mac, go to
www.freddiemac.com/mymortgage and look it up. You can also call them at 1-800-FREDDIE (8am to 8pm EST). Similarly, to find out if the investor is Fannie Mae, go to www.fanniemae.com/loanlookup or call them at 1-800-7FANNIE (8am to 8pm EST). This brings up some legal requirements.

In order to use the online services for Fannie or Freddie, you need written authorization from the borrower. So, include this in your letter of authorization that you get the seller to sign at the first meeting, so you are not only authorized to talk to the lender, but you are authorized to look up the investor on the Fannie, Freddie or any other website.

What if Fannie or Freddie are not the investor, which is a frequent even for luxury housing. Many servicers will not tell you who the investor is, possibly because they do not want the investor to know how poorly they are processing your short sale request.

However, many servicers have rules that require them to furnish the investor’s information if the borrower/seller requests that information in writing. So, add that to your letter of authorization, i.e. the borrower requests the lender to furnish you with the name, address, phone number and contact person for the investor who owns this loan.

Some commentators say that another way you can find the investor is to look them up in MERS, the Mortgage Electronic Registration System. It allows borrowers to see which company manages and owns their loan. The site was made public as part of The Helping Families Save Their Home Act. The claim is that the site will inform borrower’s when the ownership of their loan changes. However, the only part of the site that is directed to homeowners allows you to check the servicer of your loan. How to check the owner is well hidden. So, if you can make this site work, please leave a comment on this post so we can share this service with everyone.

Why do you want this information? I was dealing with Bank of America/Countrywide on a California short sale. They were taking way too long to assign the request to a loss mitigation negotiator. Wells Fargo had the second loan on the property, and they had already assigned their short sale request to a negotiator, obtained a Broker Price Opinion (BPO) and were ready to negotiate a short payoff. Meanwhile, Bank of America/Countrwide is still waiting to get it to someone’s desk to order the BPO. On my weekly phone call, I made it clear to the “gatekeeper” that a written request to get the contact information for the private investor who owned the loan had been submitted. She found a way to order the BPO immediately to speed up the process. In other words, when the servicer knows that their client, the investor, will be looking into how the short sale is being processed, the servicer wants to make it look better.

If you want to get more tools for negotiating in real estate, look at my book, Create A Great Deal, the Art of Real Estate Negotiating by going to http://www.CreateAGreatDeal.com

Mindy Finds Out It is a Short Sale After Making an Offer

March 18, 2009 by  
Filed under Short Sales Stories

mindy-oberhardt-headshot-1101I worked with Mindy Oberhardt on a short sale home purchase. She had a surprise after she made an offer, because the sellers had used a limited service agent who only entered the home as a MLS listing and that was the extent of the listing agent’s service in selling a home. The fact that it was a short sale was not in the MLS, which resulted in a surprise that Mindy did not deserve as a part of the home buying process. Homes for sale with limited service agents that have high balances on their mortgage loans may put you in an unintended short sale. Here is what she has to say:

During August of 2008, I represented a buyer in his pursuit of a home in Raleigh, North Carolina, that was involved in a real estate short sale. The fact that it was a short sale had not been disclosed in the MLS listing. The listing agent, a limited service agent, had posted the property in the MLS but took no further responsibility in making the property for sale. I was notified by the Sellers directly that the property was a Short Sale Home. I immediately disclosed this material fact to the Buyer and discussed the uncertainties involved in securing a home which was involved in a short sale. My client indicated that he wanted to go forward with the offer. Having not dealt with short sales in the past and putting my client?s best interests as my highest priority I approached Tim Burrell, a colleague in my office who had done many short sales. He partner with me to represent the Buyer and provided a bit of Realtor training at the same time. I explained to the Buyer that Tim had experience which in combination with mine, would increase the likelihood of the offer getting approved by the mortgage lender and would increase the potential of the real estate sale being approved in a more timely manner.

Tim and I worked together to not only explain the process to the Buyer but to guide the Sellers through the process as well. Tim took the lead in securing the detailed paperwork that was necessary to provide a complete package to the loss mitigation department. He interfaced with the mortgage lender on a regular basis to keep the process moving forward. Both Tim and I interfaced with the Buyer on a regular basis to explain where we were in the sequence of events, to answer questions and to keep him realistic regarding his expectations. Both Tim and I were in contact with the Sellers on a regular basis to keep them informed as well.

Tim was able to get short payoff on the home loan approved in less than two months, an amazingly short time frame for this type of transaction. Tim was out of town at a CyberStars Summit, but keeping in touch with the home mortgage lender. While he was checking out of the hotel, he took the mortgage loss mitigation negotiators call. She said the short sale was approved, and we had to close the sale on Monday. Calling on Thursday to get a closing on Monday got Tim’s attention, as it woudl be impossible to get the home buying process completed in that time. After exploring the reason, the negotiator said the Monday closing was necessary to get the exact amount shown on the closing statement paid to the investor. Tim explained that there was no way to get the insepction accomplished, the appraisal done and the loan approved by then. However, he was able to convince the negotiator that the exact amount would be paid to the investor when the closing occurred in a couple of weeks. The negotiator was worried that the payment required for the taxes would decrease the payment to the investor. The buyer paid the little bit of extra money to cover the few days of taxes. The home closed within a reasonable time after approval, once the inspections and the appraisal were completed.

Both parties involved in this transaction were extremely fortunate to have the attention of Tim and myself in this transaction. If they had been left to the limited service agent who did not know how to short sale, I shudder to think what would have happened. I don?t know of many agents that would have had the knowledge that Tim brought to the table to take it from a shocking surprise to a seamless transaction. In addition, both Tim and I took great care to respectfully keep both parties up to date at all times and to calmly guide them through what was undoubtedly a very stressful process.

Negotiating Short Sales

negotiate-short-saleMost of this website talks about negotiating in one form or another, but here are some key points.

If you are trying to avoid foreclosure, you need an offer fast. Negotiate with the Realtors through the MLS by putting something like “submit all offers, we do not care about the selling price” in the MLS listing. You will probably get “less than wonderful” prices, but you will have an offer to submit. This is particularly important with those lenders who will not let you talk to the loss mitigation department until you have an offer. With the offer, you can negotiate to keep the file in the loss mitigation department and avoid foreclosure. One of the great ironies of this process is that when the lender puts the pressure of foreclosure on you to get you motivated to sell the home, the lender almost always gets less for the home.

Negotiate the price with the agent doing the Broker’s Price Opinion (BPO) for the lender that is considering the short pay. Use the independent authority of comparable sales and the preparation of pictures of defects and bids for repairs to keep the price in line with reality. Most of the time you will have no contact whatsoever with the BPO agent, so do this negotiating with the loss mitigation negotiator, by furnishing the same pictures and bids.

Negotiate the time for review and the postponement of the foreclosure by using every form of persuasion possible. I have even called the Western Regional Director of the Office of Thrift Supervision to put pressure on Washington Mutual when they were under supervision by OTS so that I could avoid a foreclosure. If you are not getting what you need, go to an authority who can get it for you, like the investor who owns the loan, the guarantor (mortgage insurer) or a supervisor in the department. Just remember, when you do that, your pleasant relationship with the loss mitigation negotiator just ended, so only do that when you can afford to make her mad.

Most of negotiating success in short sales comes from preparation. That is why it is so important to have a complete Short Sale Package, with persuasive materials about the problems with the real estate market and the problems with the house. If you can convince the lender that they never want to own this house, the negotiations on the short sale go better. Mold, toxic waste, dangerous conditions and illegal structures are your best friends in negotiating to avoid foreclosure.

After you get a response from the loss mitigation negotiator assigned to your short sale, realize it is not that person’s decision. Don’t yell at them, they are the messenger. Also, you will need their recommendation as the negotiations continue. If the lender wants more money, present it positively to the buyer, with the benefit that the buyer has the power to eliminate the biggest problem with the short sale i.e. if the buyer accepts this offer, the approval process for the lender is over and the buyer wins by getting the home they want.

If the buyer wants to give a counter offer to the lender’s counter offer, present it with some comparable values that support that price. The BPO price may be getting out of date, so if you have more current sales and homes that just went on the market, that will give the negotiator ammunition to persuade the investor or decision maker.

Part of a Realtor’s education in negotiation is that once you get an acceptance from the lender, do a “nibble”, a negotiating technique that gets you the one last part of the deal that you need. Say, with confidence, “Of course that includes a full release of the obligation for the seller.” One of the biggest benefits of a short sale is to get the entire debt off the seller’s back, so get a full release. Some people who provide Realtor training call this without recourse, which is adequate, but the real term you want is to be fully released from the balance of the debt.

If you do not get an approval from the lender that the buyer will accept, you still have accomplished getting a short sale file open and established a method of communication with the negotiator. See if you can persuade the negotiator to keep the file open so that you can directly submit another offer to her. This will dramatically shorten the time for a second review of the short sale.

Even if you did not get a deal accepted by the buyer, hopefully you have a price from the lender that they will accept in another short sale. Some lenders just give you a denial with no price, which is a ridiculous way to negotiate. If the price was so low that it did not merit a response, the whole short sale review process should not have started. After all the review work, get a price and try to put the short sale together. Getting an acceptable price greatly helps your negotiating with future buyers. Tell them they can get the benefit of a short review time and decrease the chance that another buyer will come along if they will just equal the price the lender wants. In other words, they win on the big issue of getting the lenders approval. Also, you can adjust the listing price accordingly, so you can get more showings and hopefully more offers.

Negotiating an “as is” sale is difficult in a short sale. Most buyer’s agents cannot handle that term. They get the buyer excited about all the horrible problems that the house could have, and wonder why you brought it up if there is not some horrendous problem. Some agents even ask if “as is” means they cannot do an inspection. Assure them you want them to do an inspection so the buyer knows the condition of the house. But, the seller has no money to fix anything in a short sale. The lender is already getting a short payment, so the lender does not want to pay to “upgrade” the house.

In most short sales, you can accomplish “as is” using gradual persuasion. A tug boat cannot move a supertanker in one huge push. It does it with slow, gradual nudges. Tell the buyers agent that the lender will probably insist on an “as is” sale, but you will see what you can do. This gets the buyer startiing to accept this term, but without the image that the seller has no confidence in the quality of the house. When the lender comes back with the requirement that it gets exactly the amount shown on the closing statement (HUD-1), you indicate that there are three choices. The buyer can take the house “as is” after doing an inspection. The buyer can pay more for the house to get the repairs paid for on the closing statement, because the seller has no money. Or, the buyer’s agent can kick in the money for the repairs. When the buyer’s agent and the buyer have three choices, no one is forcing them to take the property “as is.” They just select that choice as the best one for them in the short sale.

If you get multiple offers on a short sale, a smart buyer’s agent will put the “as is” term in their offer to make it more acceptable to the lender. The buyer’s agent will know that the mortgage lender wants to deal with an agent who knows how to close the sale, and who will not “nickle and dime” them after the contract is approved for a short pay. I have seen offers that are less money get accepted by banks because they have better terms, although it is usually because the buyer is paying all cash for the short sale home. So, if you represent a buyer, make the terms of the contract as easy as possible for the lender to approve.

If you want to pick up all the tools of real estate negotiating, look for my book Create A Great Deal, the Art of Real Estate Negotiating. It will help you in ever part of real estate, but especially in short sales.

Don’t Let the Buyer Misunderstand a Short Sale

March 15, 2009 by  
Filed under Short Sale Do's & Don'ts

misunderstood-70Many Realtors have never done a short sale. If they represent buyers, they do not know what to tell them to explain the short sale home buying experience. If you are listing a short sale, be an information resource for the buyer’s agent. Or, send them here as this site provides complete Realtor education on short sales.

The first point to explain about a short sale is that you do not know how long it will take the lender to review the sale. You may have some experience with the same lender, but that does not mean they will be as efficient this time as they were last time. Estimate 45 to 60 days for the review if you do not have any experience with that lender. If the buyers are relocating for a new job that starts in two weeks, they will need to have other living arrangements. So, you need to have a longer than normal time in the contract for the closing date for a short sale home. Take your estimate of how long it will take the lender to review the sale, then add 30 days for the buyer to close the sale.

The agent for the seller needs to stay in touch with the agent for the buyer during the short sale process. You need to have some reports of progress, and tell the agent for the buyer what is being done to move the transaction along. Remember, the buyers do not know whether they bought a house or not, so they are on edge as this is not the typical home buying experience. Let them watch the progress so they can feel that something is being done.

The second point is that negotiating on a short sale is different. The sellers might sign anything at any price, because they want to get rid of the house, out of trouble and possibly avoid foreclosure. This is particularly true if he seller pays no income tax on the amount the payment to the lender is short. You do not have a deal that can close until the lender approves it. Just because the seller agreed does not mean that you can count on that price for as the final sale price of the short sale home. Most of the negotiating is with the lender.

The third point is a short sale is not a sure thing. The lender may not approve the short sale, or if the seller cannot pay the mortgage, the lender may foreclose. The buyer can make it a sure thing by paying enough to fully pay off all the liens, but I have never had a buyer who wanted to do that.

The fourth point is that the house stays on the market in a short sale. Paragraph 6 of the Nort Carolina Short Sale Addendum says that other “offers may be received by the Seller’s agent, which must be presented to the Seller pursuant to North Carolina law. Such offers may be accepted by the Seller as backup contracts and forwarded to Lienholders for review and approval.” The buyer needs to know that the house is still for sale until the contingency for lender approval is eliminated, and the buyer may have to outbid the other offers. Using the term “backup” is not as clear as it should be. If you were a lender who is losing money and the first offer makes you $20,000 less than a second offer, which one would you approve and which one would you disapprove? Since the short sale does not close without the lender’s approval, having the lender disapprove the first offer makes the second one more than a backup offer.

I am working on a short sale in a townhouse in North Raleigh where there is a first mortgage and a line of credit as a second loan. We have had five offers. I started the lender review process with the first offer that was extremely low, but it gave me an opportunity to get on the waiting list. The seller signed it, with the short sale addendum, and we submitted it to both lenders, as both of them would be short in the payment. By the time the file was assigned to a loss mitigation negotiator, we had gone through four more offers. The last one was good enough that only the second loan is a short pay. By the time the last offer came in, the second loan had agreed to accept $2,000 on a prior offer, but I had no approval on the first loan, so the contract still had a contingency. The best offer fully paid the first loan and gave the second loan more than $3,000. Maybe the key to financial recovery is good marketing and better negotiating skills in short selling a home, so that more money is returned to the banks and the homes sell for higher values to support the neighborhood values.

By the way, every time we received a better offer on this townhouse, we went back to the previous offer and gave them a chance to submit their “last, best and final” offer. You need to give all buyers, and all buyer’s agents, every opportunity to be the successful purchaser in a short sale. The Realtors work hard trying to get a house for their clients and you need to give them every chance to get a commission. For more on negotiating when there are multiple offers, see my book Create A Great Deal, the Art of Real Estate Negotiating.

The fifth point is to tell the buyer not to spend any significant amount of money on the short sale until the lender has approved the short payment. The California Short Sale Addendum is one of the best. It is right in specifying that the time limits in the contract run from the time that the lender approves the short sale. Normally, the time limits run from when the contract is signed by the buyer and seller. In a short sale, you should start the time for inspections, loan applications and other contingencies from when the lender approves the sale.

I had a short sale in North Raleigh where the agent for the buyer was an old friend of mine. She did not pay attention when I told her the house was still on the market and that other offers could outbid her clients. The buyer paid for an inspection of the property about a week after the seller signed the contract. I should have been more emphatic in stopping the inspection, but I thought no one else would make an offer on the short sale home as it backed up to a noisy road. When another offer outbid her client, and her client would not raise his price, I did manage to get the buyer reimbursed for the cost of the inspection. But, she is still mad at me. So, learn from my experience and emphatically make sure the buyer does not do anything until the lender has accepted the short sale.

A sixth expectation for a short sale is that the lender is going to try to negotiate to get more money. One potential aggrivation in a short sale is a lender who takes a long time reviewing a short sale, while the values in the area are going down. Then, the lender wants more money to approve the short pay. If the lender comes back quickly with a higher counter offer, it is easier to present to the buyer, as the comparable values may support it. If the lender comes back after an extended period of decline in the values, it is harder to get the buyer to accept the counter offer, because it is harder to have the comparable values support it. Also, it is harder for the appraisal for the buyer’s loan to come in at the purchase price. Luckily, the values in Raleigh are not declining, or just barely declining, so I do not have this problem. But, you need to set the expectation for the agent for the buyer that there may be a counter offer from the bank.

A short sale is a different type of transaction altogether, so you need to explain the differences to the buyer’s agent and the buyer so that they have a home buying experience that is as pleasant as possible.

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.

Time For Short Sale Approval

March 12, 2009 by  
Filed under Short Sale How To

time-70One of the biggest problems is the time it takes for the lender to review the short sale package. At the national conventions, the lenders on short sale panels talk about wanting to get close to the market value of a home in a short sale. To get close to a retail value, you have to sell to a retail buyer, not an investor. If the time to review a short sale proposal is measured in months, you will not get a retail buyer, as they are looking for a home that they need to move into in a reasonable time. The only buyers who will endure a long delay are the ones who are willing to trade the inconvenience for an amazing price i.e. an investor who does not care when you close. In other words, if you want to sell retail, you have to deliver the property in a retail time frame.

An example lets you see what the delay does to a family who wants a home. I submitted a short sale for $620,000 to Countrywide in May, 2008 on a property in Rancho Palos Verdes, California. They turned it down late in July, with no counter ofer, just a rejection. Two days later, the same buyer increased his offer to $630,ooo and I submitted it with a transmittal in huge bold letters identifying it as a response on an open short sale file. We did not get a response from Countrywide until November, 2008.

When the offer was submitted, the lady of the buying couple was seven months pregnant. They were hoping to get this home just down the street from where her parents lived. During the time for the initial review, their child was born. During the second review, the child was developing rapidly. When Countrywide responded by saying they wanted $635,000, the market had fallen so much that a bigger house with a better yard and a much better view came on the market for less money than Countrywide wanted for this house that needed repairs. So, the couple and their young child moved into that other house.

As you can see, the delay not only chases away family buyers, it makes it harder for the Realtors to convince the buyer to honor a contract price that was reasonable six months ago after the market has fallen.

So, what do you do? Some instructors say to submit the financial information for the seller early, so that part of the review can be completed before an offer comes in. That might help, but many lenders will not review anything until you have an offer. When the lender has too many files to review to begin with, they are going to review the ones with offers first and they may never get to one without an offer.

So, get an offer as fast as possible. If you have an investor who will buy the house at an amazingly low price, write it up, include the short sale addendum, have the seller sign it and submit it. If no other offers come along, see what the bank says in response to the offer. If they accept it, close the sale and your investor gets a good deal. If they give you a counter offer, you will know what the lender will accept even if your investor will not go that high. Once you have an approved amount for the short sale, you can adjust your list price accordingly to get a retail buyer who will accept it as you can tell them the process will be shorter than normal.

Another possibility is that a better offer may come along while you are waiting for the review of your investor’s offer. If it does, make sure that your file has been assigned to a short sale negotiator before you submit the other offer. If you submit a series of offers, the lender may start the process over with each submission, so you are moving to the back of the line each time you submit. You have to submit all offers to the seller promptly under the National Association of Realtor’s Code of Ethics. You do need to submit it to the lender at some time, but there is no requirement for urgency.

Some seminar leaders say to submit a fictitious offer, just to get the process going. If the bank accepts it, their advice is to say that the buyer walked away. I won’t do this as my credibility is extremely important.

One of the ways to speed up the process is to have a complete short sale package organized so that it is easy to reveiw. The short sale package has been discussed in a separate post, but the most important point on expediting the review is to find out what the lender wants and give them everything they want the first time.

Another part of expediting the process is to call regularly. I call at least once a week, and sometimes three times a week. You need to check the notes in the file to see where your package is. Occasionally, it is submitted to the wrong department, like the time ASC submitted my clearly labeled short sale package to the loan modification department. That department threw it away. Other times, you need to be sure that your package is moving toward assignment to a short sale negotiator. Most of the time in the review is waiting to be assigned, so if you can shorten that, it will help. The worst thing is if you are assigned to one negotiator, who does not get to your package, then they reassign it to another, who does not get to it, then it is assigned to another. You get the pattern. My record is being assigned to six different negotiators before one actually looked at it.

As a part of calling regularly, you may get acquainted with some of the supervisors in the department. See if you can submit the package directly to them for an expedited review. Usually the answer is no, but sometimes it works.

Another delay in the process is getting the appraisal or broker price opinion (BPO) done. Some lenders have a triage arrangement to review short sales. The ones that have no merit are rejected with little review. Others that may be considered go on to be assigned to negotiators. See if you can convince the triage people in the loss mitigation department to order the appraisal or BPO while the file is waiting to be assigned to a negotiator. If the person you are talking to does not have authority to order the BPO, ask to talk to a supervisor, or someone with the power to do that.

If the process is taking too long, find out if the loan has mortgage insurance or any other guarantor. One of the conditions of the loan guarantee is that the servicing lender will have a loss mitigation procedure that will promptly review short sales. Google the name of the mortgage insurance company and explain to them your issue with the delay. When the guarantor gets in touch with the lender who is reviewing the short sale to discuss how the delay may result in the cancellatioin of the guarantee, the process will speed up dramatically. You can also do this with the actual investor who owns the loan. If they hear that the delay is jeopardizing the ability to get the short sale approved, their contact with the company reviewing the loan will speed up the process.

One thing to remember during all this time, be nice. I have a strong temper and it is hard for me to deal with an incompetent system. But, getting angry with the people in the loss mitigation department is extremely damaging. They are the ones who will be making the recommendation to accept or reject your proposal. Bite you lip and be pleasant.

When you take a short sale listing, contact the loss mitigation department and find out what their normal time for review is. They will quote you something that you can pass along to the buyers to set their expectations at a reasonable level. If the buyer expects a long time for review, and it comes in anywhere near that time, you will have met their expectations. One dilemma is that sometimes the review times quoted are way longer than what it will really take. If the quote is incredibly long, it may make the buyer run away screaming. So, you have the dilemma of whether to pass on the outrageous quote or not.

Doing short sales will teach you patience, and perserverance.

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.

Do a Compelling Hardship Letter

March 7, 2009 by  
Filed under Short Sale Do's & Don'ts

poverty-70x70Short sales is all about helping people who have had hardship. I get lots of calls from well heeled investors who want the bank to take the loss that they should be taking. A short sale is for people who have had a financial hardship, not the wealthy who want to reallocate their loss. Short sales can be done on investor owned property as well as owner occupied property. But, there has to be a financial reason why the owner cannot pay the rest of what is owed to the bank.

The way you express that is in the hardship letter. Some seminars give you a list of hardships, but do not limit your thinking to a simple list. Anything that causes a change in the financial condition from when the loan was taken out which results in the inability to pay the monthly payments and the impossibility of bringing the rest of the money owed to the closing of the sale is a financial hardship. The obvious are having a business fail, losing a job, medical bills, death in the family, divorce or separation. Less obvious is forced need to move such as having to relocate to get a job or military service when your reserve unit is called up. If your payments adjust on the loan to an impossible level, describe that, but also look for dramatic tax, insurance or other monthly payment increases. One of my easiest discussions to persuade the loss mitigation negotiator that the seller had a financial hardship was when the seller was in jail. Don’t just look at a checklist, look at the curve balls that life throws that cause financial disaster.

The owner should write it personally, with enough detail that the loss mitigation negotiator can feel the pain. The letter needs to describe what has happened to create the financial setback. I have clients where the wife has breast cancer and their insurance does not cover nearly enough of the expenses. Other clients have seen their company go out of business, so being the best salesman of a product that no longer exists will ruin a family financially. Others have watched their restaurant fail completely, shut its doors, and take all their money with it. Do not just say, “we cannot afford to pay you”. You need explain why in vivid detail so that a hardened loss mitigation negotiator who reads these letters all day long can feel sympathetic to your client.

Do not stop with the description of the problem. Explain what you have done to try to eliminate the problem, deal with it, or make it better. The clients with breast cancer have a payment plan for their medical expenses. The salesman has sought work everywhere, but is working at a low hourly wage to put food on the table while he is still looking for a sales job. You do not want the negotiator to just see that your client has fallen down, you want to describe the efforts to get back up again.

At the end of the letter, tell the negotiator that the owner wants to sell the house so that they can pay back as much of the debt as possible. In areas where the market is going down, the owner can emphasize that this is the best way to honor the obligation to repay the bank, because waiting longer or going through foreclosure will yield less and less money for the bank as the value of the house declines.

The hardship letter has to be signed by the seller, and preferably by both sellers.

Do not try to be brief, because brevity leaves out the detail that makes the story poignant. Do not write the letter for your client, as it will sound like a Realtor instead of a person in trouble. Do not let your client lie, as this is a representation made in writing to a bank. Just let your client tell their whole tale of woe.

The hardship letter is not the place to vent all the seller’s frustration with the lender. If there are some things the lender has done that violate the law, you can raise them in negotiating with the lender. The seller is looking for sympathy in the hardship letter and the best way to get no sympathy is to antagonize the loss mitigation negotiator who works for the lender being criticized.

This should be on top of the short sale package, setting the stage for why this owner deserves to be allowed to pay less than what is owed to the bank. It is probably the most important document in the entire package, so give it the attention it deserves.

Go Over The Negotiator’s Head to the Investor

time-running-out-70x70The first place you negotiate is with the loss mitigation department, and hopefully you get what you need. Sometimes, you run into problems, like having them turn down the short sale with no response. In other words, they just turn you down, but do not give you a counter offer to work with. This is particularly upsetting if you are facing a foreclosure. So, how do you stop the foreclosure?

It is extremely unlikely that the loan belongs to the lender you are dealing with. On average, banks keep only 15% of their loans. So, there is an 85% chance that they are only servicing the loan. When the payments are not being made, they have lost the servicing income and want to get it back to producing income for the bank either by reinstatement or foreclosure.

So, when you have a problem with the lender that is servicing the loan, go around them to the actual investor. The investor’s motivation is different from the servicer. Instead of looking at a lost income stream, the investor is trying to get as much principal back as possible.

If you can get in touch with the loss mitigation negotiator at the servicing bank, just ask who is the investor. They do not have to tell you, but if you establish some raport before you ask, they might. If they do not tell you, change the subject, talk about something else, then casually ask them what team they are on. The lenders divide their loss mitigation departments into teams based on who the investor is, so the team members only have to learn the rules of one investor. Once they tell you what team, you know the investor.

If you cannot get the information about the investor directly, play the odds. If the loan is within the limits of a conforming loan, it is most likely Freddie Mac or Fannie Mae. Start with Freddie Mac by going to www.FreddieMac.com, because there is only one loss mitigation department in Freddie Mac, in McLean Virginia. If Freddie does not have it, try Fannie Mae at www.FannieMae.com. They have five offices. The office that will regulate your lender is the one closest to its headquarters. So, figure out which one is the closest to the headquarters and call.

If it is a HUD or a private investor, they are much harder to find.

Once you get in touch with the investor, they may have more interest in accepting your short sale. They will need to get in touch with the servicing bank to postpone any foreclosure and discuss the acceptance or counter offer to your short sale proposal. In other words, it is not the end of the line if he servicing bank will not work with you. Try the guarantor, as we discuss elsewhere in this website or try the investor. The investors and guarantors may have a different reaction to your proposal.

Find The Loss Mitigation Department

February 28, 2009 by  
Filed under Short Sale How To

bank-key-70x70The key to working with the bank is to find the right department, then understand how to work with them.

There are a number of different departments within the bank. The Customer Service Department is designed to get you to the right place for your particular problem. As long as they take the time to understand what you want, they are a resource that will get you to the right people. To understand where you might be misdirected, here are the departments that you do not want. The Collections department is to get money out of the borrower, maybe get the account current or get it foreclosed and out of the system. The Bankruptcy department deals with loans that are in bankruptcy, typically seeking to get the properties removed from the protection of the bankruptcy stay. The Foreclosure department is to march directly to the foreclosure sale with minimal distractions, typically providing the borrower only with the amount necessary to fully reinstate the loan or the amoun for a full payoff of the loan.

What you want is the Loss Mitigation department designed to lessen the loss to the bank primarily by facilitating short sales. To understand the difference, members of the collection department get bonuses for getting money paid on the loan or for getting money recovered through foreclosure. Members of the loss mitigation department get bonuses from completing a short sale and recovering money for the bank through the closing of the sale.

Do they publish the phone numbers for the loss mitigation department? No.

So, how do you get there. Here is a link to a blog that has a list of contact information for the loss mitigation department of some lenders: http://tinyurl.com/bboput. You can also check another list by clicking here. But you need to know how to find the loss mitigation department in any financial institution.

Most people would look on their mortgage statement from the bank. If you are behind on your payments, do not call the phone number on the mortgage statement, because it is the collections department. They will try to get some kind of payment, and they are under extreme time pressure in their call, as most of them are timed for how long they are on each call. If they tranfer you to loss mitigation, some firms give the collector a black mark. Find an old loan statement from when the payments were on time because the number on that statement will get you to customer service department. Get them to transfer you to the loss mitigation department.

When you call loss mitigation, you will typically get a gate keeper who can give you some preliminary information. Some of the departments will tell you what you need in the short sale package. Others will send you a form with that information. Still others have that information online. Get that information as soon as you can, because you want to tailor your package to their requirements. They review hundreds of packages, so if you put your information in a format that is easy for them to review, you will get a better reception form the negotiator.

Most loss mitigation departments will not deal with you in any significant way unless you have an offer. Once you have an offer, submit it in the manner we describe in the Step by Step guide. Then, start calling loss mitigation about once a week to see that it moves along. When your package gets to a negotiator, see what you can do to make that negotiators decision easy. Provide everything they request in the format that they want as quickly as possible.

Communicating with some loss mitigation departments is extremely hard. When you call the Countrywide loss mitigation number, and go through the prompts, more than half the time you will be transferred to collections. They will try to tell you it is the same thing, while they are asking what you can do to get the seller to bring the account current and suggest you call HUD to learn about how to reinstate the loan. You just need to learn to smile at their claim that they are the same.

So you try email. Countrywide has a system coming out of their merger with Bank of America to send secure emails, where you need a password. That sounds simple enough. However, on many occasions the system will not let you get to the message even if you get the password emailed to you and you copy and paste the password into their system. In other words, you can enter it perfectly and not get the message. So, you send a regular email to the negotiator. Many negotiators will not respond to regular emails. So they get mad that you did not get their message. So, you call and leave a voice mail. Most negotiators will respond to a voice mail one to two days later. If you are not immediately available to answer their call, you will get a message. So, you return the call, get their voice mail, you leave a message and it could be another two days.

Another example is Bank of America. They get between 500 and 1,000 short sale packages a day. So, the negotiators do not have time to talk to you at all. You communicate by the cover sheet on the fax or the documents in the package. So, if you have a message for the negotiator, put it in the fax cover sheet or a letter on top of the package.

What is the solution? Creativity! Most Realtors are good finding a way to get in touch. With Citibank, I found that the gatekeepers (i.e. the first line of defense in the phone system) had access to the loss mitigation negotiator’s files. So, when I wanted to find out what was happening, I called so often that I got to be on a friendly basis with a few gatekeepers. They would read me the notes in the files.

Keep on calling. Many loss mitigation departments will not contact you with the resutls of their review. I found out that Countrywide had rejected one of my short sale applications six days earlier when I made my weekly call. They did not give a counter offer, just a rejection, so I got the buyer to increase the proposed price and submitted that offer. In other words, you have to be the one who communicates, because they do not have time to get messages to you.

Even though communication with loss mitigation is difficult, it is far better than any of your other choices because the purpose of the loss mitigation department is to get the short sale reviewed and possibly approved. Learn patience and the ability to hold your temper when you get transfered a dozen times or disconnected just when you are getting to the right person. If you make the negotiator mad, you will get an approval that you can never perform. So, once again, the relationship is all up to you.

Realtors are good at communication, so just take this as an opportunity to improve your skills.

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