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.

How to Communicate with the Lender/Servicer

telephone-operators-70You need to communicate with the loss mitigation department. Another post goes into detail about how to get in touch with them in “Find the Loss Mitigation Department.” Now that you have found them, how do you establish communication.

I have written a book on negotiating, Create A Great Deal, the Art of Real Estate Negotiating. It discusses collaborative negotiation as the best way to get the highest quality agreement. You want to establish a collaborative atmosphere so that you can exchange information that will make it more likely that the agreement will go together, and close gracefully. You and the loss mitigation negotiator have the same goal: to convince the investor or other decision maker to approve the short sale. Most negotiators get a bonus for an approved short sale. So, find out how you can work together to reach the goal.

The first thing you want to do is collaborate to keep the file in the loss mitigation department. If it goes to the foreclosure department, your time to get an offer and get it closed becomes much shorter. Also, the foreclosure department is much harder to negotiate with, as their guiding principles are to get to the foreclosure sale or get full reinstatement. Collaborate with the loss mitigation representative to find out what you can do to help them keep the file in loss mitigation. Furnish whatever they need to keep the file from proceeding to foreclosure.

My friend, Joan Curry at RE/MAX UNITED, represented a family interested in one of my Raleigh, North Carolina short sale listings in 2005. The sellers were getting divorced and I was talking with the loss mitigation department, sending them information to show that the sellers are qualified for a short sale and emphasizing the marketing effort. On December 30, I was just walking out the door of my house in California to catch an airplane to Raleigh when I got a call from the lender. My primary residence was in California where I had one team of Realtors, and I had another team in Raleigh, North Carolina. I traveled back and forth frequently. The loss mitigation representative told me that if she did not have an accepted offer by the end of business that day, the file was going to the foreclosure department. I called Joan Curry as I drove to the airport to tell her I had to have an offer right now, encouraging her with the possiblity of a good deal if she met the time deadline. Sitting in the L.A. airport, I got her call with a very low offer. I presented it to each one of my clients separately, in the manner that you must in a divorce, and recommended a quick counter offer.

My sellers had to battle each other to savor the divorce experience. They came back with a counter offer that was a bit worse than my recommendation just as I was boarding the airplane. I called Joan with the counter offer and explained that I would land in Dallas just before the close of business for the lender. I hoped her clients would accept it, and leave that message on my cell phone. When the airplane’s wheels touched down, I turned on my phone long before it was allowed, and there was no message. While we were still on the runway, I called Joan. Her clients had a counter offer. I called mine as we taxied. They wanted to fight again, but I was able to keep the focus on the time. They accepted the counter. I called the lender as we neared the gate, but there was no answer at her desk. I got the receptionist, had my contact paged and she heard it just as she was walking out the office door. I confirmed that we had a contract. She wanted it faxed to her immediately, and I stiffled a laugh. In 2005, that would be hard.

Since she was not going to be back in the office until tomorrow morning, I told her it would be there, but she could just leave for the evening and it would be on her desk in the morning. When I arrived in Raleigh, Joan had the contract signed by the buyer on my fax machine. I got the sellers to sign in the middle of the night, going to each residence. I sent it to the lender, so it would be on her desk when she arrived. If I did not fulfill that promise, I would lose credibility. We had several more fights between my divorced clients, but we close the sale on time.

To make a long story long, do whatever is necessary to stay in loss mitigation. Before that, do what is necessary to establish rapport so that you will get a head up and a way to cure any problem that is coming up.

While all this sounds good, you cannot rely the loss mitigation department. That sounds harsh, but you cannot trust that they have any continuity or that they are properly processing your proposal. There is so much turnover and so many people working on your file that you have to take detailed notes of every conversation. You will talk with dozens of people with little consistency in their approach to the short sale. You have to keep the process on track by having every conversation documented. They put notes in their file. You need notes in yours. Write down their name, the date, the time and even which department they work in (some lenders have branch offices that cover the phones all over the US, so know there that person works to properly identify them). If you are able to refer to everyone you talked to, and when you talked to them, and confirm what they said, you will have a much easier time persuading the next person you talk to that certain commitments have been made.

Another way you cannot rely on the loss mitigation department is that you cannot count on them to notify you when they have made a decision. I called Countrywide on my regular weekly call to discover that they had turned down my short sale five days before, and they were closing the file because I had not responded with a new offer. I got a new offer in the next day, but the file was closed, so it went through the entire review process again. They will not call you, you have to call them. When they ask why you are calling so often, tell them the Countrywide story.

Dealing with loss mitigation departments is the ultimate in frustration. You start out talking only to gatekeepers, low paid staff whose job it is to convey simple information and get you off the phone. Do not get angry with them, as they put down everything in the notes in the file.

Call at least once a week, and preferably more, after you package is submitted and before it is assigned to a negotiator. You need to keep after the process to be sure the package does not get stuck somewhere, or routed improperly. Always be polite, and ask for the help of the people you are talking to. They will review the file and tell you what is missing, what needs to be done or what will help. You can improve your chance of success by first asking for their suggestions, then listening carefully.

Once you get to a short sale negotiator, that person does not make the decision. They put together the presentation for the investor or other higher level reviewer who makes the decision. Some of them you will not be able to talk to, they are too busy. So, your trial brief summary of the proposal will have to speak for you. Others will only communicate by email. An email does not properly convey tone and emotion. To correct, write in detail and do not say anything that you do not want passed on to everyone in the world. If you get to talk, great negotiating is more about listening than talking. So, listen actively, repeat back bits of what they said with an encouraging remark, and listen more. The first way to establish trust is to listen, as you do not people who do not listen to you. Again, if you want a course on negotiating, go to Create A Great Deal, the Art of Real Estate Negotiating.

One of the most frustrating parts of the loss mitigation review is having your file reassigned to another loss mitigation negotiator. The gatekeeper will try to tell you that this will not slow down the process. If you believe that, I would like to sell you the Brooklyn Bridge. If you can get in touch with the new negotiator, do not wait for the package to be sent by the lender. Send the package again directly to the new negotiator, as there is a decent chance that it will not get routed correctly, or that it will take a long time for the internal routing to work. Then, listen to the new negotiator, whether you are listening to faxes, emails or an actual telephone call.

In short, be persistent, be polite, ask for help, listen carefull and give the negotiator what she needs to succeed.

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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