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.
I 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.
Most 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.
Many 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.
Some short sale sellers will make your life extremely “interesting” with their talent for putting on multiple mortgages and collecting liens. You get to negotiate them all, because if any one will not sign off, the short sale does not close. As the picture shows, you have to get every lender to jump into the deal.
This is why some Realtors will not take short sales with too many mortgages and liens. Some short sales do not close, and ones with multiple liens are the hardest to close. Once you have done some short sales, you will understand why. Refer the short sales you do not want to another Realtor who is willing to deal with the mess. A separate post discusses the priority of liens and their effect on how much to offer each lien holder in Lien Priority Determines Who Gets Paid & How Much
The first issue is how do you negotiate with all the liens. Some of the people providing Realtor training say to negotiate with the last one first . In other words, if you have a first loan and a second loan, find out what the second loan will settle for first, then negotiate with the first loan. There may be some merit to that, because you know what you have left to offer the first loan as a short pay.
I do short sales differently because I negotiate all of the debts at once. The reason is that there is not a linear relationship between them. In other words, the results of each negotiation is interdependent on the results of all the other negotiations, so you need all the answers all the time. If the property is in foreclosure, you do not have enough time to submit the package to the second lender, wait for their review and approval, then submit it to the first lender. I had a property in foreclosure in Palos Verdes, California with a first and second loan with Washington Mutual and a third with CitiBank. Citibank gave us an approval on the third loan one day before the deadline set for the foreclosure on the first loan. If I had waited to get that short pay approval first, then submitted to the other lenders, the sale would not have gone through.
To understand the interdependence, some lenders on a short sale home have guidelines for how much they will let a junior lienholder be paid. I am working on a short sale in Rancho Palos Verdes, Calfironia where the first loan is with Countrywide and the second loan, a line of credit, is with Bank of America. The seller cannot pay the mortgage. Countrywide will not allow the second lender to be paid more than $3,000 on the closing statement (HUD-1). Bank of America will not settle for less than $5,200, because they have a rule that they will not take a short sale that does not pay them at least 10% of the outstanding balance of the loan. The entertaining part of this standoff is that Bank of America is merging with Countrywide, so it is like a one member of a couple saying you have to put all the money in my right pocket, then the other member of the couple saying no don’t do that, put money in my left pocket.
How do you break this standoff? You have to know what is allowed under your local rules, the disclosure rules for lenders and the National Association of Realtors code of ethics. In California, the commission is paid by separate commission instructions to the escrow officer that are not part of the escrow instructions signed by the parties. You can consider having one of the Realtors send the amount of the difference to the junior lender. You can also have the buyer buy something from the junior lender that happens to equal the amount of the difference. You cannot do anything that is beyond the rules for proper presentation of information to a lender i.e. do not lie to a lender. See the post Don?t Put Your Client In Jail for more discussion, and substitute Yourself for Your Client.
If you watch a good chef, you will be amazed at how many things can be prepared at once with all of them finishing at the same moment. When you get good at short sales, you can handle many liens at once and get them to a closing at the same time, and be able to avoid foreclosure at the same time.
One 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.