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

What is a Short Sale?

March 10, 2009 by  
Filed under Short Sale How To

dictionary-2-70x70The short answer is it is a sale where you do not generate enough money from the sale of the property to fully pay all the loans and liens, and the creditors accept less than full payment for these debts. In other words, the payment is “short”.

In your grandparent’s day, if you sold a property and did not have enough money to pay off all the loans, you took the rest of the money out of your pocket and brought it to the closing of the sale.

I have heard that the first short sale was done by Fannie Mae in 1988. I did my first one in 1992. In the early ’90s, it was unbelieveable for a banker to have someone call and offer to pay them less than what was owed. You could hear some real ugly words out of a banker’s mouth back then. Failing to fulfill the promise that you will pay back what you borrowed was obscene to them. When you think about it, the banker has a point, because the borrower is not living up to the promise to pay back the loan.

This is a process that may not be perfect, but it is frequently the most practical solution to the current financial crisis. If the property has gone down in value so you cannot get enough money out of the sale, a short sale may be the best choice. If the borrower has had a recent financial disaster, the short sale may get more money from the bank than any other choice, because you cannot get money out of a broke borrower.

A short sale works where the property qualifies and the borrower qualifies. If there is enough money from the sale, the bank gets fully paid. If the borrower has the money to bring to the closing, the bank probably will not approve a short sale. If the property has insufficient value and the borrower has insufficient funds, consider a short sale.

There is a wide range of training that the Realtor must have to give the right advice. There are at least three sides to the negotiations, instead of two, because you have to get the sale agreed by the buyer and seller then approved by the lender. There are title issues, so you have to understand what the liens are and how the priority of the liens affects how much each lender gets paid. There are income tax issues. There are issues concerning the foreclosure process. You need to explain the effects on credit reports. You need an understanding of the law concerning debt collection to try to get a full release from the debt. You have to be aware of interpretations restricting your ability to negotiate with a bank if the foreclosure process has started, as it may be considered the unauthorized practice of law. You have to be able to close an “as is” sale, so the second round of negotiating after the inspection is different. A short sale even takes special talent for the closing attorney or escrow officer.

Where are you going to learn all this? Right here at www.ShortSalesR.us

Don’t Practice Law, Unless You’re a Lawyer

scales-of-justiceThe relationship between Realtors and Lawyers is interesting. Lawyers do not want Realtors intruding on their turf. When a foreclosure proceeding is filed, it may be considered a lawsuit depending on the foreclosure procedures in your state. Many foreclosures are done by a power of sale in the deed of trust, so it is just a series of notices and other requirements leading to a non-judicial foreclosure. In other words, it is not a court proceeding. However, in many states a foreclosure is a filing with the court, so it can be considered a legal proceeding or lawsuit.

In North Carolina, the Short Sale Addendum to the Listing Agreement says “If a foreclosure or other judicial proceeding is filed with respect to the Property, although Firm may continue to solicit and negotiate offers to purchase and contact, communicate with, obtain information from and supply information to Lienholders, Firm may no longer negotiate the terms and conditions of a Short Sale with Lienholders, as such negotation would constitute the practice of law.” This did not come from a determination by the North Carolina State Bar, as they have no official opinion issued on this issue. What that means to you is that the bar association has not agreed on where the line is between the practice of real estate and the practice of law. This wording came from the North Carolina Association of Realtors. I talked to an attorney at the North Carolina Real Estate Commission who felt it would take an extreme situation of negotiating with a lender for the Realtor’s activity to be ruled to be the unauthorized practice of law, as he felt that presenting an offer to a lender and encouraging the lender to take the short sale is a permissable activity for a Realtor.

Other states have similar interpretations of the line between what a Realtor can do and the practice of law. For example, click on this determination by the Florida Bar’s Standing Committee on the Unauthorized Practice of Law.

Luck for me, I am an attorney. How about you?

If you are not licenced as a lawyer in the state where the property is located and where the client lives, you need to know about the rulings that may restrict what you do in negotiations when a foreclosure has been filed. For states like California, where nearly all the foreclosures are non-judicial in nature, the line may be drawn in one location. For states like North Carolina, where the foreclosures involve a court filing, the line may be in a different location.

One other pitfall to avoid is the regulations on debt counseling. If you charge the seller a fee that is not contingent on the closing of the sale, it can be argued that you are doing debt counseling. So, do not charge any up front fees, just collect commissions if the sale closes.

How do you stay out of trouble? Follow the wording in your forms. For example, in North Carolina, you contact, communicate with, obtain information from and supply information to the lender. You do not use words like negotiate or advocate in any correspondence. Be sure to phrase everything, particularly everything in writing, in terms of contacting, communicating, obtaining and supplying information. You are just communicating, you are not advocating.

How do you find the line? Talk to your broker in charge. You may also want to talk to an attorney, particularly if your firm has one on retainer. Just know where the line is so that you will not have problems. Some of your communication with a lien holder that are in writing might be lasting proof that you are engaged in the unauthorized practice of law, so stay away from the line.

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