Common Real Estate Short Sale Misconceptions

1. The bank owns the home – Nope! The home owner owns it until the bank takes it in foreclosure (or deed-in-lieu).
2. All offers on the home go to the bank – Actually, by Georgia Real Estate Law, all offers need to go the seller.  If the seller decides to send them all to the bank or just one, that’s up to the seller.
3. The bank pays all the fees – This is tough one.  Remember, the bank is lowering their payoff to allow the seller to pay the fees.  It’s a tough concept but a key one.
4. The bank pays all the fees - I know, we just wrote that, but in this case, the bank will not allow ALL fees, all the times.
5. The bank is the owner of the “note”- Actually, in most cases, the “bank” isn’t the bank at all, they are rather a Mortgage Servicer who collects money for the bank.  Think “property manager” for the landlord and you have some idea.
6. Short Sales and Foreclosures are equal – I won’t even cover this here, but check out what we wrote 2 years ago.
7. You Must Have Lost Your Job to qualify – Actually, you just need a “hardship” which could simply be, “I could not find a renter.”
8. All Short Sale Sellers are people in major distress – If you thought that then you’re clearly not in reality.  The truth is that most Georgians who purchased in the last 3 years would all be candidates for successful short sales.
9. There Is Such A thing as an “Approved Short Sale” – With one or two exceptions, there is really no such thing as an approved short sale.  Sorry folks.  You can have a short sale approved, but it typically will tell you what buyer you have to close with. So if the buyer walks… you’re out of luck.
10. Short Sales Take Forever – In most cases this one can be true. However, if you have an agent on the buyer’s side and on the seller’s side then from start to finish, they shouldn’t take more than 60 days.
11. Short Sales Are A Hassle – Again, like the previous one, it’s mostly true due to inexperienced agents.  Deal with an agent that knows what they are doing and then it’s only bank dependent.  (See Suntrust)
12. There is NO such thing as an “approved short sale” - No, I’m not naturally wishy-washy.  In most instances when we get an approved short sale and the buyer “walks” we immediately know what the bank will “take” and our time to renegotiate with the bank is dramatically reduced.  However, keep in mind that most banks will still require you to go back through the process again (if you are the seller).
13. Short Sales Are Not The Best Deal on The Market – That’s true.  The best deals on the market are ones that can only be purchased via cash and have a set criteria to look for.  Experienced investors and renovators like Brian & Peter know how to get the BEST deal, but Short Sales are close second.

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Common Short Sale Misconceptions

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Key Questions For Determining Short Sale Expert Status

Last time we talked about the other people that try to help. There are certainly well meaning individuals out there that are qualified and can help.  However, more often then not, these “other” people are looking for another angle to get paid on the short sale than just what the bank has to offer.

Real Estate Agents

Although it’s a bit biased opinion, Real Estate Agents are typically the ones that you should be turning to, especially if the only debt you are dealing with is your home.

They only get paid if the short sale is successful.  The problem is that there is no real way to know if they know what they are doing.  To make matters worse, the National Association of Realtors (NAR) likes to hand out “Designations” like they are candy.  So you can be a Certified Distressed (Short Sale) Expert by attending a few hours in a classroom without actually ever calling or talking to one bank.

Typically, Agents will work your short sales in one of two ways.

1. They or their team will negotiate and take care of the short sale from start to finish.
2. They will take your personal information and send it to a 3rd party to negotatiate that might be out of state, country, etc.

At the end of the day, there is one question that will help you sift the, well you know.

1. How many short sales have you closed and represented the Seller?  (Generally speaking, after about 10 short sales, the person should have adequate experience)

Follow that with some additional interview questions and you might just find your perfect helper in this “perfect storm.”

1. Who negotiates with the bank?  Who sees the files, etc?
2. How many active short sales do you currently have? – (this is loaded – and should lead to additional questions.  – How do you manage so many?  Why do you have so few?)
3. Who’s on your team?
4. How often do you contact the bank?
5. Which banks have you worked with (get specifics!)?
6. What is your “favorite bank?”
7. What’s your least “favorite” bank?

FINALLY, the real question should be:  ARE YOU A FULL TIME AGENT? – agents that are full time and feed their family with this business have everything on the line and have enough “skin” in the game to really help you, expert or not.

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Who Are The Real Short Sale Experts? Part 2

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Key Questions to determine if you’re dealing with a True Short Sale Expert

If you are in the unfortunate majority of home sellers who are upside down on your home and needing to move, it can be a stressful situation.  Add to this the complexity of choosing someone to help you.  You have supposed short sale attorneys, loan modifications, forensic auditors and more knocking on your door to assist you.   On top of that you need to sell your home and of course that means you need a Realtor. 

Now you have a new set of questions, do you negotiate, does the Realtor, does the attorney, how do they interact and where do you fit in.  What’s it all cost? It’s no wonder that many sellers opt to give up and let the home foreclose.

Before I go into some questions it’s important to put yourself in other people’s shoes to help understand their motivation.

Attorneys

Attorneys are great at what they do.  However, when times are tough they tend to add some unnecessary work to their plate because of the creditability that comes with being an attorney.  (Some of you are gagging, but if an attorney sends you a letter, you pay attention).  Short sales are something that the attorney is immeniently qualified to negotiate, however the real question should be two-fold

1. What’s the attorney’s business model?  How are they making money on the short sale?  Is this disclosed?
2. What will the attorney do when their primary business picks back up?

Keep in mind that bankruptcy attorneys know that foreclosures can be stopped in Georgia by a bankruptcy.  Their “help” might be a little nudge in one direction or the other.

Loan Modification Experts Or Forensic Auditors

There’s all kinds of supposed third party “help” out there for short sales.  The key is again understanding the motivation.

1. What kind of fees are involved?
2. What’s the success rate?
3. What happens to the files?
4. Who is actually negotiating this? – most of the time it’s another 3rd party somewhere.  How many hands and eyes see your personal information?

Our experience is that most (NOT ALL!) want the upfront money and then spend no time making sure the actual work gets done.

Real Estate Agents

This group is likely the one that genuinely wants to help you the most.   In our next post we’ll talk about how to determine if the agents who want to help are actually qualified.

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Who are the Real Short Sale Experts?

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Loan Modification Specialists?

Anyone that has been worried about their mortgage at one time or another these days has likely thought about a loan modification.  With all the “specialists” and “help” out there it’s tough to know who to trust.

The definition of a loan modification as per HUD is:

A Loan Modification is a permanent change in one or more of the terms of a mortgagor’s loan, allows the loan to be reinstated, and results in a payment the mortgagor can afford.

There’s some key questions that you might want to ask your supposed helper.

1. Who does the actual loan modification work? – Since the work is and can be done by the homeowner, why & who is doing this work?  – If the person who is “helping” isn’t the one doing the work, you might want to get details on their “staff.”  Other questions off this line – is this person an owner of the company, an employee or are they an “independent contract” who is in a MLM company?
2. How many successful Loan Modifications have they done – the individual person, not the company as a whole?  Do they have references?
3. Is this their full time job?
   
4. How much does it cost and what’s included?

Post from: Atlanta Short Sale Listings, Search All Georgia Real Estate, Short Sales Atlanta

Loan Modification Specialists?

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I received this e-mail recently regarding some loan modification completions that we had recently done.

“After the assignment has been completed and submitted, check back with the homeowner in one to two weeks.  More often than not, the homeowners you contact will not be able to recover financially. For whatever reason, it doesn”t matter.  We are not to pass judgment.  We are out there to stop the foreclosure.  If they cannot make the payment, they will be moving, one way or another.  Let”s help them do this the easier way.

1. Step one:  Ask them what happened and then LISTEN.  Find out how much money is coming in vs. expenses.  If they are upside down, they cannot recover.
2. Step two:  Explain the ramifications of foreclosure i.e. eviction; credit scores being affected 300-400 points; deficiency judgment being filed for balance OWED, which in most cases will be twice what the home is worth; loss of dignity.
3. Step three: Explain the benefits of a short sale i.e. buying the homeowner some time; getting them some relocation assistance; saving their credit (in most cases a short sale will ding your credit less than 100 points); the bank accepts an offer short of what is owed and calls it paid in full meaning, THEY WALK AWAY FREE AND CLEAR.  It”s a no-brainer!
   THIS IS FROM THE BANK SERVICER!
4. Step four: explain that they have their choice of realtor in the event they decide to list and sell the property.  HOWEVER, it is IMPERATIVE that they hire an agent that knows the short sale process inside and out.  YOU are that realtor! AND WE will negotiate the short sale in-house to guarantee success and efficiency.

We must counsel these people to remove the emotion from the process.  They need to realize, in light of the current economic crisis, this needs to be a business decision.  As long as they have all of the facts about all of the possible scenarios, they will be able to make an educated business decision.”

I thought it was amazing that they know all along that loan modifications don’t work and are basically asking us to make sure we stay in touch with the people we help to ensure they do a short sale.

Post from: Atlanta Short Sale Listings, Search All Georgia Real Estate, Short Sales Atlanta

Loan Modification – Letter from the Bank, Post-op

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The more short sales simplify the more they get complicated, instead of complaining about it here, I thought I would show you from quotes from e-mail correspondence with GMAC Loss Mitigation department:

Hi,

Thank you for submitting an offer.  I have a counter offer for your offer. If possible, you should reply to this note through Equator Messages so your reply is delivered correctly and tracked. To reply, log in to the Equator System and go to the Messages section.

Not too bad here.  After 4 exchanges:

Joshua,

Which offer do you want me to review? I have HUD1′s and purchase agreements for what appears like 3 different offers. Whichever offer you wouuld like me to work, please make sure there is a signed purchase agreement and HUD1 to match it already uploaded into the library. I will then have to have Equator remove the other two offers.
Thank You

My response:  “There were 4 offers.  Thankfully, we want you to consider the highest one.  See what was uploaded to your equator system.”

Then this happened:

Joshua, please call [NAME] they said they are going to foreclose – Client

Now, normally we are expecting this type of response and we called in and we took care of it, but got this e-mail response:

@ GMAC return my call today.   Please contact her asap, she  told me that we can’t depend on the equator system to avoid foreclosure. The most recent information in the equator system as of 4/29/10 was incomplete.  Please provide her a copy of the Hud 1, Executed Listing Agreement, Buyer pre-approval letter.

That wouldn’t annoy me if they didn’t force us to use the silly system in the first place.

As Grandaddy used to say, “If it’s broke, but you can’t make it better, don’t fix it.”

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GMAC Short Sale Exchange

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Roswell, GA – Atlanta’s Premiere Short Sale Specialist Team closed another short sale last week.  Located at 620 Pine Grove in Roswell GA, this home was an FHA Short Sale through Flagstar.  There were many hurdles that are common with FHA short sales, but at the end of the day those hurdles are not comparable to other ones associated with non-fha short sales.  Here’s the common problems, or wrinkles with FHA short sales:

• If the bank does not know how to handle them (Bank of America), then your file could be processed then have to go to the back of the line to start over.
• FHA does not pay seller concessions (closing costs), except for 1% if the buyer is getting an FHA Loan
• FHA does give up to $1,000 to the home owner for “moving expenses” however, in many cases this will need to be waived in order to assist the buyer in paying for closing costs.  Some banks like, Citi, make this decision for the home owner, other banks leave it up to the home owner.
• There is an FHA Appraisal done on the property.
• Different banks use different timelines.  In theory, the home owner and realty should have at least 90 days to sell the property after receiving the pre-approval letter.  In some instances (Suntrust), the time starts when the process starts.

Post from: Atlanta Short Sale Listings, Search All Georgia Real Estate, Short Sales Atlanta

FHA Short Sale Process – Flagstar

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If the servicer has not already discussed a short sale or DIL with the borrower, the servicer must proactively notify the borrower in writing of the availability of these options and allow the borrower 14 calendar days from the date of the notification to contact the servicer by verbal or written communication and request consideration under HAFA.  If the borrower fails to contact the servicer within the timeframe or at any time indicates that he or she is not interested in these options, the servicer has no further obligation to extend a HAFA offer.

Once a servicer determines that a short sale is the best course of action for the borrower, or upon request of the borrower, the servicer will provide a Short Sale Agreement (SSA) which contains information such as acceptable list prices, minimum net proceeds, and the duration of the SSA.

Once an offer is received, you will provide the servicer with a Request for Approval of Short Sale (RASS) which details the terms of the offer. You will also include with the RASS a copy of the executed sales contract and all addenda, buyer’s documentation of funds or buyer’s pre-approval or commitment letter on letterhead from a lender, and all information regarding the status of subordinate liens and/or negotiations with subordinate lien holders. If an offer is made on the property before the servicer provides a SSA, you will provide an Alternative RASS for the servicer’s consideration.

While servicers may amend the terms of the SSA in accordance with investor requirements, applicable laws or local real estate practice, at a minimum the SSA must include the following:

• A fixed termination date not less than 120 calendar days from the effective date of the SSA (“Effective Date”). The Effective Date must be stated in the SSA and is the date the SSA is mailed to the borrower.  The term of the SSA may be extended at the discretion of the servicer up to a total term of 12 months if agreed to by the borrower, in accordance with the requirements of the investor.

• A requirement that the property be listed with a licensed real estate professional who is regularly doing business in the community where the property is located.

• Either a list price approved by the servicer or the acceptable sale proceeds, expressed as a net amount after subtracting allowable costs that the servicer will accept from the transaction.

• The amount of closing costs or other expenses the servicer will permit to be deducted from the gross sale proceeds expressed as a dollar amount, a percentage of the list price or a list by category of reasonable closing costs and other expenses that the servicer will permit to be deducted from the gross sale proceeds.

• The amount of the real estate commission that may be paid, not to exceed 6% of the contract sales price, and when applicable, notification that the servicer retained a contractor to assist the listing broker with the transaction along with the payment amount (expressed as a fixed dollar amount or percentage of the contract sales price) if paid from sale proceeds.

• A statement by the borrower authorizing the servicer to communicate the borrower’s personal financial information to other parties (including Treasury and its agents) as necessary to complete the transaction.

• Cancellation and contingency clauses that must be included in listing and sale agreements notifying prospective purchasers that the sale is subject to approval by the servicer and/or third parties.

• Notice that the sale must represent an arm’s length transaction and that the purchaser may not sell the property within 90 calendar days of closing, including certification language regarding the arm’s length transaction that must be included in the sales contract.

• An agreement that upon successful closing of a short sale acceptable to the servicer, the borrower will be released from all liability for repayment of the first mortgage debt.

• An agreement that upon successful closing of a short sale acceptable to the servicer the borrower will be entitled to a relocation incentive of $3,000, which will be deducted from the gross sale proceeds at closing.

• Notice that the servicer will allow a portion of gross sale proceeds to be paid to subordinate lien holders in exchange for release and full satisfaction of their liens.

• Notice that a short sale may have income tax consequences and/or may have a derogatory impact on the borrower’s credit score and a recommendation that the borrower seek professional advice regarding these matters.

• The amount of the monthly mortgage payment, if any, that the borrower will be required to pay during the term of the SSA, which amount must not exceed 31% of the borrower’s gross monthly income.

• An agreement that so long as the borrower performs in accordance with the terms of the SSA, the servicer will not complete a foreclosure sale.

• Terms under which the SSA can be terminated.

Within ten business days of receipt of the RASS and all required attachments, the servicer must indicate its approval or disapproval of the proposed sale by signing the appropriate section of the RASS and mailing it to the borrower.

The servicer must approve a RASS if the net sale proceeds available for payment to the servicer equal or exceed the minimum net determined by the servicer prior to the execution or extension of the SSA and all other sales terms and conditions in the SSA have been met.  Additionally, the servicer may not require, as a condition of approving a short sale, a reduction in the real estate
commission below the commission stated in the SSA.

The servicer may require that the sale closing take place within a reasonable period following acceptance of the RASS, but in no event may the servicer require that a transaction close in fewer than 45 calendar days from the date of the sales contract without the consent of the borrower.

Servicers will receive $1500 as incentive to close a short sale transaction under HAFA, and investors will be reimbursed up to $2000 for allowing part of the proceeds to be paid toward subordinate lien holders. For each three dollars an investor allows to be paid toward a subordinate lien, they will receive one dollar from the U.S. Treasury up to $2000. This is helpful to remember when trying to get first lien holders to allow an amount to be paid toward a subordinate lien holder.

The subordinate lien holders are always difficult with regard to short sale negotiations, and the new Supplemental Directive gives you some good bargaining power when negotiating with a second. The most important regulation is that each subordinate lien holder, in order of priority, may be paid no more than six percent (6%) of the unpaid principle balance of their loan, until the $6,000 aggregate cap is reached. Skillful negotiation will still be required, however, because a subordinate lien holder does not have to agree to accept the lesser amount and could potentially force the property in to foreclosure if they refuse to provide an acceptance letter.

Post from: Atlanta Short Sale Listings, Search All Georgia Real Estate, Short Sales Atlanta

HAFA – Home Affordable Foreclosure Alternative – Even More Information

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It is important to note that lenders are not required to participate in the Making Home Affordable Program, and those which choose to participate have their own internal guidelines for how the program works within their company. In order to determine what internal guidelines are offered through your client’s lender you will need to contact the lender in question and ask directly.

A participating servicer must consider a homeowner for HAFA if the borrower requests a short sale or deed-in-lieu under HAFA, and a servicer will also consider a homeowner for HAFA within 30 days of the date the homeowner:

• does not qualify for HAMP; or
• does not successfully complete a HAMP trial period; or
• misses at least two consecutive payments on a HAMP modification.

However, before evaluating a homeowner for HAFA, a participating servicer must first consider that homeowner for other loan modification or retention programs that they offer. In addition, pursuant to the servicer’s policies, every eligible homeowner must be considered for HAFA by a participating servicer before the homeowner’s loan is referred to foreclosure and before the servicer may allow a pending foreclosure sale to continue.

With a HAFA short sale, the servicer may not require a cash contribution or promissory note from the borrower and must forfeit the ability to pursue a deficiency judgment against the borrower.

HAFA simplifies and streamlines the short sale process by providing a standard process flow, minimum performance time frames and standard documentation.

Post from: Atlanta Short Sale Listings, Search All Georgia Real Estate, Short Sales Atlanta

Even More HAFA (Home Affordable Foreclosure Alternative) Information

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I’ve been fielding calls about the HAFA program for the last month and it’s so unfortunate that the “powers that be” decided to market this program so heavily but did not decide to use their “power” to inform the public. Here’s a quick run down of the qualifications:

• You must be 60 days behind
• Your home must be owner occupied (you can move out due to job transfer but not to “move up”)
• You must have gotten your loan before January 1, 2009

But the biggest kicker here is that the banks are doing this VOLUNTARILY! Meaning they don’t have to do this, so if you have the following types of loans, you are out of luck:

• FHA
• Fannie Mae (which actually administers HAFA!)
• Freddie Mac
• VA
• Ginny Mae
• Some Private Label loans

That’s about 70% of the loans out there.  When you get a loan at Bank of America for example, they sell the loan to an investor and keep the rights to collect the payment from you.  The investor is usually one of these companies above.  That’s where the problem is.

We don’t even get to talk about the “move out money” if you have a fannie mae loan.

How do you find out what type of loan you have?

You could simply call your servicer/bank and ask or you can call the institutions themselves and ask.

Post from: Atlanta Short Sale Listings, Search All Georgia Real Estate, Short Sales Atlanta

HAFA (Home Affordable Foreclosure Alternative) Qualifications

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