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. 

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.

You probably know by now that completing a short sale is much, much better then giving up and quitting and letting the bank take the home via foreclosure.  You probably also know that although, much better than a foreclosure, the short sale will affect your credit.

What you probably don’t know is that in most cases a deed-in-lieu of foreclosure and a loan modification will as well.

Your loan modification (depending on the type) is essentially a settlement or restructuring of debt.  Ever see those debt consolidator commercials that say, “no bankruptcy needed?”  Just like a loan modification (which you can do yourself) you could do this with your creditors as well, as in you could negotiate a lower payoff or better terms with your creditors.

The catch is that there’s usually some damage to your credit involved.   This information comes straight from Wells Fargo, who told a client the other day that this modification would be recorded and adversely affect their credit.

The same can be said of a deed-in-lieu where you are basically settling or agreeing NOT to pay the debt.

To understand why this happens you have to refer over to the pie chart and see how it “hits” your credit.

See the largest part of the pie?  35% to payments?  Keep in mind that 99.9% of the time you will not qualify for any of these things without missing a payment, so that’s damage number 1.

The second part of this is settling which is like missing one big payment or all of the remainder payments.  It’s kind of like dropping an atom bomb on your credit. Depending on how this is recorded it could very well stay on your credit for 5 years or more.

Finally, there’s the issue of forgiveness of the debt in the case of the deed-in-lieu that could result in a collections account being opened.

We understand that everything is going crazy right now, but if you keep your wits about you, you can often avoid some damaging things and come out better in the end.

According to business week, this is a common practice, one that makes it scary to even think about a deed in lieu or a foreclosure.

Deficiency judgments were rare in the 15 years since the last real estate slump, said Ben Hillard, a former investment banker who now is a real estate and corporate attorney at Hillard & Rogers in Largo, Florida.

“The banks have been too underwater with foreclosures to spend much time on deficiency judgments, but that’s beginning to change,” Hillard said in an interview. “This is going to be the next big crisis.”

The key (which is alluded to in the article) is to know your options and have a specialist help.

• Make sure the wording is correct and forgives you of the debt.
• Be happy if you get the 1099, that means the bank has “written off” your debt – in exchange of proper wording.
• Know your state laws – Georgia gives 30 days for banks to pursue a deficiency judgment.
• Know what type of loan you have on the home.  Home Equity “LINES” are different than “LOANS” and are treated differently
• Know your situation – are you really in a great situation but carrying the mortgage note on this home is a drag?  You could be a target as this next quote suggest.

The likeliest candidates for deficiency judgments are so- called rational defaults, said Larry Tolchinsky, a real estate attorney in Hallandale Beach, Florida. In those cases, people who are current on their mortgages decide to walk away from a property because its value has sunk so far below their loan balance they have no hope of recouping the loss.

About 21 percent of American homeowners owe more on their mortgages than their properties are worth, according to Zillow.com, a Seattle-based real estate data firm.

“Walking away from a property comes with a cost, especially for people who otherwise have good credit,” Tolchinsky said in an interview. “The bank is going to pull your credit report, and if you’re current on your other bills they are going to come after you and potentially ruin you.”

If you want to explore your options, feel free to contact us.  A short sale at least keeps you in charge as much as possible.  A foreclosure is the bank “TAKING” the home and a deed-in-lieu is basically giving up, if there’s no negotiation for forgiveness.

As someone who almost completely specializes in short sales, I’m surprised by the number of agents who still have absolutely no clue. I’m even more surprised by the investors who think they can profit off of the agents hard work without anything in the game. I am constantly getting calls from Investors that have never really done a short sale and they want in. They want to do something called an Option Contract. Option contracts can be great thing, but without the people in place to execute it, it’s just going to cause a foreclosure instead of stop it.

If you’re a savvy investor, then call me, otherwise, leave me alone. If you are a seller, I have a team that includes an investor if you want an offer in 24 hours, you can have one! No need to listen to some of these opportunists.