NAR: Increased Lending, Short Sales Will Reduce REOs
Improving access to affordable mortgage financing for qualified home buyers and investors and committing additional resources to loan modifications and short sales will help reduce current and future inventories of real estate owned (REO) properties held by government agencies, according to the National Association of REALTORS®.
In a letter sent today to the U.S. Department of Housing and Urban Development, the Federal Housing Finance Agency, and the U.S. Department of the Treasury, NAR responded to the agencies’ recent request for input and offered its recommendations for selling REO properties held by Fannie Mae, Freddie Mac and the Federal Housing Administration.
In its letter, NAR urged the agencies to create an advisory board as they explore new options for selling foreclosed properties to ensure that efficiently disposing of agency REO properties will minimize taxpayer losses and reduce the negative effects that distressed properties have on local real estate markets.
“As the leading advocate for housing issues, REALTORS®know that foreclosures affect families, communities, the housing market and our nation’s economy,” said NAR President Ron Phipps. “We believe the government has an opportunity to minimize the impact of distressed properties on local markets by expanding financing opportunities, bolstering loan modifications and short sales efforts, and enhancing the efficient disposition of REO properties. This will help stabilize home prices and neighborhoods and help support the broader economic recovery.”
Phipps said that the lack of available and affordable mortgage financing is hurting REO sales and the entire housing market, and urged increased consumer and investor lending. While NAR supports strong underwriting standards, the lack of private capital in the mortgage market, unduly tight underwriting standards, and increasing fees have discouraged many potential home buyers from applying for mortgages. NAR believes ensuring mortgage availability for qualified home buyers and investors will help absorb the excess REO inventory.
To prevent further REO inventory increases, NAR also recommended that the agencies take more aggressive steps to modify loans and, when a family is absolutely unable keep their home, to quickly approve reasonable short sale offers that allow families to avoid foreclosure. Phipps said that while federal programs have been put into place to help keep families in their homes, many of these have fallen short of expectations, and advocated that those resources be applied toward modifying loans and expediting short sales, which are typically less costly than foreclosure.
“Loan modifications keep families in their home and reduce defaults, while short sales keep homes occupied, helping stabilize neighborhoods and home values,” Phipps said. “Expanding resources and ensuring the use of already allocated funds for pre-foreclosure efforts is the best opportunity to reduce taxpayer costs and creates more positive outcomes for homeowners and their communities.”
NAR’s letter also outlined concerns about proposals to pool large volumes of REO properties for bulk sales. While these types of transactions may help quickly alleviate high REO inventories, taxpayers would be required to accept larger losses than are necessary. Phipps said that efforts should be made to incentivize individual versus bulk sales, except in small geographic areas that meet certain criteria, since selling in bulk to large national investors puts a large section of the housing market into the hands of fewer market participants and puts individual home buyers and sellers at a disadvantage.
He also said the success of any bulk sale programs should be determined by the stabilizing effect the program has on a locale and whether it maximizes value to taxpayers. Maximizing the recovery on the agencies’ assets will depend on how property valuations are determined and that those valuations are accurate, appropriate, and reflective of market conditions, such as the valuations available through the Realtors Property Resource™, an NAR subsidiary.
NAR is also concerned about proposals that include lease-to-own elements. Phipps said that agency policies should first be focused on keeping families in their homes through loan modifications or short sales if that’s a better option, and that the agencies should not expedite foreclosures so that those properties could be included in a lease-to-own program. He added that any lease-to-own programs should not be administered by the government, but instead should include the participation of local investors or nonprofits that can manage the specialized needs and challenges of the local market.
“REALTORS® welcome the agencies’ desire to receive input and ideas to help address their REO inventory. We look forward to serving on any advisory board and working together with agency staff, real estate professionals, property managers, and others with extensive real estate industry experience to develop sound strategies and solutions to ongoing REO issues,” said Phipps.
Source: NAR
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Which Banks Are Pursuing the Most Short Sales?
JPMorgan Chase and Wells Fargo accounted for 60 percent of the some 17,781 short sale and deed-in-lieu agreements loan servicers completed through May under the Home Affordable Foreclosure Alternatives program, reports Inman News in its analysis of the latest figures provided by the Treasury Department.
The two banks emerged as the front-runners in completing short sales and deed-in-lieu of foreclosure agreements when compared up against other loan servicers, all participating in the HAFA program.
On the other hand, Bank of America entered into less than half as many HAFA short sales or deed-in-lieu of foreclosure agreements than either JPMorgan Chase or Wells Fargo.
The government’s HAFA program provides incentives for completing short sales. For example, home owners participating in a HAFA short sale receive $3,000 in relocation assistance.
Source: “Chase, Wells Fargo Lead in HAFA Short Sales,” Inman News (July 5, 2011)
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BofA’s Short Sales Outnumber Its Foreclosures
Bank of America seems to be favoring short sales over foreclosures, at least according to new housing data released this week. The banking giant completed more short sale transactions than foreclosure sales every month for the last year and a half, HousingWire reports. Bank of America completed more than 95,000 short sales in 2010–more than double compared to the year prior.
BofA as well as other banks say the Home Affordable Foreclosure Alternatives program, introduced in April 2010, has helped make it easier to collect documents and reduce the time it takes to close on a short sale transaction. For example, Citigroup says it has dropped its average closing time from 120 days (from when the property was listed to when it closes) to 83 day currently.
“It’s a lot easier to qualify now for HAFA than it was in 2010. All I need is a hardship affidavit and one water bill. We’re trying to make it as easy as possible,” David Sunlin, Bank of America’s real estate management executive, told HousingWire.
Source: “BofA Completes More Short Sales Than REO for Last 18 Months,” HousingWire (June 14, 2011)
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Midwest MLS Offers Service to Speed Up Short Sales
Midwest Real Estate Data LLC has partnered with Fannie Mae to provide its 40,000 brokers and real estate professionals a new service that aims to shorten the time they have to wait for approval from Fannie Mae on short sale transactions.
The Fannie Mae Short Sale Assistance Desk will help real estate professionals handle post-contract issues, such as the responsiveness from loan servicers, second lien issues, or any issues involving mortgage insurance, according to MRED.
Getting an approval on a short sale transaction often can take months. By submitting the information via the streamlined service through MRED, Fannie Mae will be able to make faster decisions on short sale requests, according to MRED. Agents will receive an initial response within one week that their case is being reviewed.
MRED, which covers northern Illinois, southern Wisconsin, and northwest Indiana, is a real estate aggregator and distributor that provides multiple listing service to more than 40,000.
“Long approval delays increase the risk that a buyer will walk away,” says Dean Rouso, president of MRED. “Long approval times on short sales overall have led many potential buyers to avoid short sale listings altogether. By providing the Assistance Desk, MRED is helping to support the recovery of distressed communities.”
Source: “Midwest Real Estate Data LLC (MRED) Offers Service to Speed Up Short Sales,” Midwest Real Estate Data (March 15, 2011)
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Calif. Survey Cites Flaws in Short Sales
Fewer than three in five attempted short sales succeed due to a difficult-to-navigate process, according to the California Association of REALTORS®’ recent member survey.
The problems center around lack of response from lenders on a short sale offer, which often takes 60 days and sometimes up to six months, the survey showed. The prolonged process causes many buyers and sellers to ultimately give up.
The survey found that 94 percent of CAR real estate pros had participated in a short sale transaction last year. The most common problems they faced included unresponsiveness of lenders, onerous procedures, and long processing delays.
CAR is trying to get the public to join in its fight to change the process. It’s running a letter in several large California newspapers about the flawed short sale process. CAR argues that uniformity among lenders about what they require to approve a short sale is badly needed, particularly in situations where more than one lender holds a mortgage on the same home.
“It is never going to be a painless transaction,” says Dustin Hobbs, spokesman for the California Mortgage Bankers Association. “It is far more complex than a typical purchase because you have so many factors at play. You are asking the lender and investor to take a loss, which is not something that is easily decided.”
Source: “‘Short Sale’ Process Under Fire,” The Press-Enterprise (March 9, 2011)
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HAFA Posts New Rules for Short Sales
Loan servicers will have 30 days to send a borrower a short-sale agreement that includes the list price or acceptable sales proceeds under recent changes made to the Home Affordable Foreclosure Alternatives Program, aimed at distressed borrowers who don’t qualify for other government loan modification programs.
Once a sales contract has been initiated, loan servicers then have 30 days to approve or reject the transaction.
The stricter timelines are believed to help speed up the short sale process, which has faced numerous complaints for how long it takes lenders to review and approve short sales often causing buyers to walk away.
The stricter timelines were apart of several revisions the Treasury Department recently announced to its HAFA program — the second major revision to the program since its launch in 2009.
Another big change: Loan servicers will no longer be restricted on paying second-lien holders, allowing them more freedom particularly when dealing with second-lien holders when borrowers owe less than $100,000. Loan servicers used to be restricted to paying second-lien holders no more than 6 percent of outstanding loan balance (with an overall limit of $6,000) in exchange for releasing subordinate liens. Second-lien holders have been another big obstacle to completing short sale transactions.
HAFA’s new directives also now forbid loan servicers from deducting vendor expenses from commissions paid to real estate brokers.
The rules are effective Feb. 1. It does not apply to mortgages owned or guaranteed by Fannie Mae or Freddie Mac, or insured or guaranteed by a federal agency such as the Federal Housing Administration (FHA).
Source: “Short-Sale Incentives Revamped Again,” Inman News (Jan. 10, 2011)
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Second Liens Roadblock for Short Sales
Second mortgages have become one of the biggest roadblocks to closing short sales.
There are about 450,000 properties in some stage of the foreclosure process with at least one junior lien, according to real estate research firm CoreLogic. These second liens are a primary challenge for Freddie Mac, said Mark Johnson, who oversees short sales for Freddie.
Holders of second liens have little left to lose so some of them are willing to get in the way of a deal in hopes of being thrown a bone, said Jon Goodman, a real-estate lawyer and investor in Boulder, Colo.
Source: The Wall Street Journal, Nick Timiraos (11/27/2010)
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Buyers Face Purchasing Delays
Lawrence Yun, NAR chief economist, said he expects one more month of elevated home sales. “We are witnessing the ongoing effects of the home buyer tax credit, which we’ll also see in June real estate closings,” he said. “However, approximately 180,000 home buyers who signed a contract in good faith to receive the tax credit may not be able to finalize by the end of June due to delays in the mortgage process, particularly for short sales.
“In addition, many potential sales are being delayed by an interruption in the National Flood Insurance Program. Florida and Louisiana, also impacted by the oil spill, have the highest percentage of homes that require flood insurance.”
As the leading advocate for homeownership issues, NAR is supporting Senate amendments to extend the home buyer tax credit closing deadline through September 30 for contracts written by April 30, and to renew the flood insurance program. “Sales and related local economic activity would have been higher without delays in the closing process or flood insurance issues,” Yun noted.
NAR
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Distressed Sales Gain Greater Market Share
First American CoreLogic reports that distressed properties accounted for 29 percent of all U.S. home sales in January. Also, real estate-owned sales rose to 22 percent of homes sales from 19 percent in December, and short sales rose to 8 percent from 7 percent.
Average sale prices in January were $161,600 for distressed homes, compared to the average nondistressed sale price of $247,700, $141,900 for REO properties, and $215,300 for short sales.
Source: American Banker (04/09/10)
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Owners Who Refinanced May Owe IRS
People who cashed out refinances, or had part of their mortgage debt forgiven when they sold their homes through short sales, will probably owe the IRS a big payback.
In 2007, Congress passed the Mortgage Forgiveness Debt Act, but that doesn’t let everyone off the hook.
Here are exceptions to the rule:
• Anyone who did a cash-out refinance and spent the money on something not housing related, then got in trouble and lost their home to a foreclosure or short sale, will owe the IRS as if the money from the refinance were earned income.
• The IRS will forgive tax liability only on money from home-equity loans that was spent to improve the property.
• Anyone who lost a vacation home or investment property to foreclosure or short sale will owe Uncle Sam.
• Multi-million dollar homes — lost or sold — are always subject to tax.
Source: CNNMoney.com, Les Christie (04/08/2010)
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Foreclosed Borrowers May Get Loans Again
Will people who currently face foreclosure or short sales or who walk away from their underwater properties ever be able to get financing to buy another home down the road?
Banks haven’t been very forthcoming on this issue. However, knowledgeable observers of the situation say that while it may take some time, the situation will right itself for most people.
Because bankrupt borrowers have eliminated their debts, they should “constitute attractive fodder for mortgage lenders,” says University of Michigan law professor John Pottow, whose specialty is bankruptcy.
As home prices and the mortgage market stabilize, lenders will be motivated to lend to people who previously had financial troubles if they look like they can pay the next time around, says Alan Riegler, a consultant with CCG Catalyst, which advises banks.
“The lender who figures out how to do more of this case-by-case stuff cost-effectively is going to end up ahead of the pack,” Riegler says.
Source: Inman News, Matt Carter (03/05/2010)
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Short Sales Rise in Popularity, Survey Finds
Short sales accounted for 15.9 percent of home purchases in January, according to a survey by Campbell Surveys for Inside Mortgage Finance.
Before January, the peak in short sales had been 15.1 percent in October. They declined substantially in November, probably because of the number of first-time home buyers hoping to use the tax-credit that required them to close by December 1.
While short sales take a long time to close, they typically sell for only 91 percent of listing price, making them a popular option for bargain-hunting buyers who aren’t in a hurry, the survey said.
Source: Inman News (02/23/2010)
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A Much-Needed Road Map for Short Sales
As lenders adopt new federal guidelines, short sales should become less frustrating for all.
The short-sales process, often agonizingly long, may not speed up overnight, but there’s reason to believe that better days are ahead. The federal government’s long-awaited guidelines for standardizing short sales were released at the end of 2009, and although they don’t take effect until April, mortgage servicers have the option of implementing them early.
The short sales guidelines are part of the government’s new known as HAFA, which is an add-on to the Obama Administration’s more wide-reaching Home Affordable Modification Program launched in early 2009. The idea is that if borrowers are eligible for the modification program but are unable to work out a plan to stay in their home, they—and their lenders—have a well-mapped route for executing a short sale or a deed in lieu of foreclosure.
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Banks Start to Embrace Short Sales
Even before the government put pressure on them to embrace short sales, more banks were starting to take their lumps, do the short-sale deals and move on.
Three years into the housing meltdown, short sales have tripled to 40,000 in the first six months of 2009, compared to the same time period a year ago, according to data from the Office of Thrift Supervision and the Office of the Comptroller of the Currency.
Wells Fargo, Bank of America Corp., and JPMorgan Chase & Co. this year have hired and trained more staff to handle short sales and also developed software for expediting them.
“It’s really finally dawning on banks that they’re better off with a short sale,” said Richard Green, director of the Lusk Center for Real Estate at the University of Southern California in Los Angeles. “I think banks were in denial.”
Source: Bloomberg, John Gittelsohn and Margaret Collins (12/4/2009)
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Government Announces Short Sales Guidelines
The U.S. Treasury Department announced new guidelines this week designed to make short sales go more smoothly.
To qualify under these new guidelines:
* The property must be the home owner’s principal residence.
* The home owner must be delinquent on the mortgage or close to defaulting.
* The loan must have been made before Jan. 1, 2009, and be for less than $729,750.
* The borrowers’ total monthly mortgage payment must exceed 31 percent of their before-tax income.
Under the plan, borrowers will receive $1,500 from the government for selling homes for less than the amount of their mortgages. Mortgage-servicing companies will get $1,000 for each completed short sale. Second-mortgage holders can receive up to $3,000 of the sales proceeds in exchange for releasing their liens. Investors who hold the first mortgage can collect up to $1,000 from the government for allowing the payments.
Borrowers who complete a short sale under the program must be “fully released” from future liability for the debt, according to the guidelines.
Source: Associated Press, J.W. Elphinstone (11/01/2009) and The Wall Street Journal, Ruth Simon (11/01/2009)
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Banks Making Short Sales Tougher
Banks are backing away from short sales, forcing sellers to pay extra at closing or demanding a promissory note for the amount due. One-third of borrowers owe more on their mortgages than their properties are worth, according First American CoreLogic.
When their situations were really tough, most banks preferred short sales because they were their best opportunity to get the most money back. But with an improving economy, and because the losses on many of these properties have already been written off the books, banks are increasingly reluctant to negotiate a short sale.
Today, banks demand 9.5 weeks to respond to a short-sale request, compared to 4.5 weeks a year ago, according to research firm Campbell Communications. Their reluctance is frequently stymieing sales and frustrating real estate practitioners.
“It drives me up a wall,” says Robert G. Hertzog of Summit Home Consultants in Phoenix. “[The bank is] holding my client hostage.”
Source: BusinessWeek, Christopher Palmeri
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Distressed Properties: Still More Pain Than Gain?
Foreclosures and other distressed property might look like a good deal, but some buyers are discovering that they just don’t have the stomach for the problems that come with it.
Buyers of distressed property often must deal with severe vandalism, unpaid water bills and homeowner-association dues, hidden second mortgages, and mechanics liens.
Lenders are trying to make these purchases go more smoothly. J.P. Morgan Chase & Co. has twice as many employees as before handling short sales, while Bank of America Corp. now allows real estate practitioners to submit short-sale documents online. The U.S. Treasury Department is expected to soon issue streamlined guidelines to lenders on short sales.
An experienced real estate practitioner with training in selling foreclosures and short sales can make a big difference, but in the long run, buyers who don’t have much cash or aptitude for home repairs should think hard before trying to buy a distressed property.
As Jerrold Horning, a homebuyer in El Cajon, Calif., said, “I don’t think it’s worth the hassles.”
Source: The Wall Street Journal, M.P. McQueen
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Shorting Bank of America
We all know a short sale is when a homeowner and the bank that holds their note agree to sell for a price that’s less than the amount of that note. It’s sort of a win win, in that the seller walks away without having to fund the deficiency, and the bank doesn’t have to worry about taking back another property via foreclosure.
Short sales are, in short, all the rage. Along with other distressed sales, including straight up foreclosure auctions, and REO sales, short sales are painfully common these days. I too find that they’re all the rage, but for me the rage is more like the way they make me feel and the frustration that boils into a mild form of pencil throwing rage. The problem is that banks treat short sale requests as if they’re doing the buyer a favor, and I think it’s the other way around.
Last August, while searching for a run down home to buy in hopes of making some money off a future sale, I stumbled upon a forlorn home outside of Fontana. It was a sad little home. Hiding behind Williams Bay style weeds. This humble shack had been abandoned, and it was a perfect remodel candidate for the less puffy lipped Lake Geneva Jeff Lewis.
I remembered that the home had been on the market a few years earlier, so I contacted the previous listing agent only to discover that my little weed adorned pig was heading to foreclosure. In an attempt to stall the foreclosure, I wrote an offer and had it quickly accepted by the seller, pending short sale approval by the lender.
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Watch for Legal Traps in Distressed Sales
Short sales and bank-owned properties represent one of the best opportunities to grow your business today.
Yet they can expose you to serious legal liability if you’re not careful, legal experts said Wednesday at the 2009 REALTORS® Midyear Legislative Meetings in Washington, D.C. Here are their tips for steering clear of trouble.
Be wary of calling yourself an expert. Almost overnight, companies have sprung up offering you the chance to become “certified” as a specialist in short sales or REOs. Although some of the programs might provide good training, you can invite trouble if you go overboard and market yourself as an expert,” said Chuck Kasky, director of legal affairs for the Maryland Association of REALTORS®.
Read the fine print. Some certification companies have an indemnification clause that puts legal costs on your shoulder if they’re included in any lawsuit against you. “Read their disclaimers,” Kasky said.
Don’t engage in unauthorized practice of law. Other increasingly common practices, such as broker price opinions, negotiations with lenders in short sales, and giving advice to homeowners about seeking a loan modification before they try a short sale, are all practices that might be challenged as either unauthorized practice of law or otherwise outside the scope of sales associates’ license. Even accepting a fee for broker price opinions—in states where they’re allowed—might raise trouble for sales associates who accept fees directly rather than through their broker, Kasky said.
Check your E&O coverage. If you help home owners navigate a loan modification, be aware that your E&O policy might not cover your actions if you’re sued, said Michelle Lind, general counsel of the Arizona Association of REALTORS®. Providing such help is considered the business of housing counseling agencies, not brokerages, she said. Similarly, if you handle REOs for a lender, be sure your E&O policy covers property management activity, she said. Many of your tasks in selling REO properties are property management functions: getting utilities turned on, keeping the property secure if it’s vacant, even evicting people.
Watch out for flippers. Be on the lookout for the growing practice of investors buying short sales and then flipping them, she said. Depending on how they’re structured, the transactions might raise legal issues, and sellers might look to you if they’re unhappy with what they got for their property.
—Robert Freedman, REALTOR® Magazine
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Real Estate Pros Push for Better Short Sales
As anybody who has dealt with one knows, short sales should be renamed “long sales.” But that could be changing.
One of the real estate professionals leading the charge to revamp the short-sale process is George K. Wonica, owner of Wonica Real Estate & Appraisals on Long Island, N.Y., and chair of the NATIONAL ASSOCIATION OF REALTORS® Conventional Finance and Lending Committee.
Wonica already has met with 10 mortgage bankers and servicers in Florida to address the problem, and plans a similar meeting this summer in Las Vegas. He points to the uniform short-sale form developed by the California Association of REALTORS® as a good example of what the industry needs.
Short sales appear to be good for both banks and buyers. A study by Connecticut-based Clayton Holdings Inc. showed lenders from May to October 2008 lost an average 37 percent through short sales versus 56 percent on homes sold after foreclosure.
Lenders recognize this and are trying to speed up the process. David Knight, a senior vice president at Wells Fargo Home Mortgage, says, “We think (a) short sale is superior to foreclosure … A short sale is not a bad deal all around.”
Additional liens are often the big holdup, but there could be progress on that front. In April, Bank of America, a major holder of second liens, announced that it would accept 5 percent of sale proceeds after real estate commissions and other costs on short sales. Previously, it had sought 10 percent.
Source: Inman News, Gilbert Mohtes-Chan (05/07/2009)
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Tread Carefully When Making a Low-Ball Offer.
These days, it’s easier to make a low-ball offer than it used to be, but still it’s important to be smart. Here are some things that a real estate practitioner and would-be buyer should consider when contemplating such an offer:
? Use foreclosures as comps carefully. Look realistically at the prices foreclosures in the neighborhood brought. Foreclosures aren’t good comps if the homes were stripped of appliances, pipes, HVAC, etc.
? Examine details of short sales critically. How many liens were there against low-selling short sales? If there were no secondary liens, the lender had considerable flexibility.
? Establish realistic time frames. Even in the best of circumstances, foreclosure takes a long time. Will the seller play the waiting game? How long have houses whose owners have equity stayed on the market? Is the buyer in a hurry?
If your buyer makes a low-ball offer, the bank probably won’t be in any rush to take it. They’ll likely just keep soliciting offers without coming back with a counter. Ultimately, the property is likely to sell for a higher price and, chances are, you and your buyer won’t know it until the deal is done.
Source: ThinkGlinck, Ilyce R. Glink (03/30/2009)
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Short Sales: 7 Legal Pitfalls.
In many areas, short sales are the biggest game in town. But you don¿t want to jump into this niche willy-nilly.
By Robert Freedman | April 2009
In addition to educating yourself on the ins and outs of these complex deals, you also need a good picture of the legal risks that exist for you.
Misrepresenting tax consequences.
Although it’s true that the federal government passed a law in 2007 directing the IRS not to count mortgage debt forgiven by a lender as income, the provision is limited. It applies only to purchase money; it doesn’t apply to debt on a cash-out refinancing, and it doesn’t apply to second homes. There’s also a dollar limitation, albeit a generous one ($1 million for married couples filing separately, twice that for joint filers). “A lot of associates are telling people there are no tax consequences,” says Lance Churchill, a short sales specialist and trainer who operates in Boise, Idaho, and San Diego. “But it’s a limited law and you just need to be accurate about it.”
Misrepresenting how secondary debt is treated.
Practitioners might mistakenly tell sellers that all the house debt is forgiven once the primary lender approves a short sale. But that might not be the case, Churchill says. Holders of second deeds of trust don’t typically forgive the debt. More commonly, they accept a partial payment, like $2,000; and rather than write off the balance, they sell the balance to a collection agency for another few thousand dollars. In many states, these second loans are recourse, so sellers can be caught by surprise when the collection agency contacts them a year later seeking payment of the debt.
Acting on inappropriate lender requests for seller contributions.
It’s not uncommon for lenders to go after money that the sellers have in the bank or in a retirement account before they approve a short sale request. They’ll sometimes seek to put the onus on the real estate practitioner to get sellers to sign over a note for the amount they have in the bank as a condition of sale. But in states where mortgage debt is nonrecourse, lenders have no right to the money, and associates that suggest otherwise to the sellers might be later sued for negligence.
Breaching fiduciary duty.
Investors are increasingly executing what’s known as a “double close and flip,” a type of short-sale transaction that can leave practitioners exposed to irate sellers who say they got a raw deal. Here’s what typically happens: Investors insist on handling short-sale negotiations with the lender, freeing up their real estate practitioner to concentrate on finding a buyer. During the negotiations, the investors—often without the practitioner’s knowledge—talk the sellers into turning over the deed. Once the practitioner finds a buyer, the investors do a double closing, buying it themselves at a deep discount and then flipping it to the buyer at the listed price, making money on the spread. “The seller might feel he got less than he would have had the associate done his job and not handed over negotiations to the investor,” says Churchill.
Providing poor oversight of a loss mitigation company.
Companies that specialize in managing short sales promise to focus on the complicated details of the short sale, freeing up practitioners’ time to find buyers. But if you take a hands-off approach, you can be charged with negligence if a deal falls apart. “A lot of these companies are fly-by-night or have one person who’s overworked,” Churchill says. “Practitioners are coming back a month later to find no one’s even opened the file.”
Lacking the required license to undertake loss mitigation.
It often makes sense for practitioners to take a two-pronged approach with clients facing a difficult time paying their mortgage—first trying to help them accomplish a loan modification (for a fee), and then finding a buyer if a modification doesn’t work. But watch out. Depending on your state, you could need a specific license, sometimes called a credit repair license, to earn a fee for helping owners modify mortgage terms. Without having the right credentials, taking a fee for loan modification assistance could be a criminal offense.
Facilitating transactions not listed on the HUD-1 form.
It’s not uncommon for investors to offer incentives to sellers to move a deal forward, but lenders typically frown upon sellers who walk away with money when they’re supposedly taking a loss. Investors sometimes work around this limitation by offering to buy something from the sellers at an attractive price, such as a couch for $5,000. Associates who communicate these offers to sellers can get tied into charges of lender fraud because the deals may be deceptive.
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Short Sales: The New Wild West.
From pushy lenders to aggressive investors, there are many challenges that real estate practitioners must overcome in the new world of distressed sales.
By Robert Freedman | March 2009
Tom Troli’s client had already been preapproved by two lenders for a short-sale purchase. It seemed like the deal was moving ahead smoothly. But that’s when Troli, CRS®, GRI, was presented with what seemed to be a make-or-break condition by the lender who held the seller’s mortgage.
The lender said it wanted to do its own preapproval on Troli’s client just to be sure he really could get financing, but then the company proceeded with a hard-sell pitch to originate the new loan. “I’ve been flat-out told by these lenders, ‘We want to sell to someone who uses one of our lenders,’” says Troli, a broker with Prudential Wheeler/Steffen Real Estate in Claremont, Calif. “It seems like a conflict of interest.”
The hard sell by lenders is just one of the many challenges sales associates face when working with distressed sales. Other challenges: aggressive investors who try to make money through a “double close and flip” transaction that can leave sellers upset with their listing agent; salespeople who encourage buyers to make offers on several short-sale properties to see which deal sticks; and ineffective third-party negotiators who only complicate transactions. More info.
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3 things sellers must know about Short sales.
Underwater on your mortgage? A short sale may be an option, but you first have to convince the bank to erase part of your debt – and your credit will still suffer. So is it worth it?
How To Do a Short Sale. Why Would a Lender Accept a Short Sale?
Definition: A short sale occurs when a property is sold and the lender agrees to accept a discounted payoff, meaning the lender will release the lien that is secured to the property upon receipt of less money than is actually owed.
Also Known As: Shorted sale
Alternate Spellings: Short-sale
Common Misspellings: hort sale
Examples: If the unpaid balance of a loan is, say, $100,000 and a property sells for $90,000, under a short sale the lender might accept $90,000 as payment in full.
A short sale in real estate is not always a pleasant transaction. Full Story.
Snag a great deal on a short sale!
Short Sales – where a lender agrees to take less than it’s owed on a mortgage – are rising sharply. Here’s how you can profit.
(Money Magazine) — When Brian Gavitt, a physician, and his wife Gayleen, a stay-at-home mom, started to eye homes in Sacramento last winter, they knew they were looking in the hardest-hit areas of the housing bust. So the couple, who were relocating from Lansing, figured they could land a fantastic bargain in no time at all.
The part about the bargain turned out to be true. The Gavitts bought a five-bedroom house in the upscale Natomas Park neighborhood (“Even now, you don’t see FOR SALE signs up anywhere,” says Gayleen.) And it was a steal at $300,000, a full $200,000 less than they would have paid just two years ago. Full Story.
How To Do a Short Sale. Why Would a Lender Accept a Short Sale?
Definition: A short sale occurs when a property is sold and the lender agrees to accept a discounted payoff, meaning the lender will release the lien that is secured to the property upon receipt of less money than is actually owed.
Also Known As: Shorted sale
Alternate Spellings: Short-sale
Common Misspellings: hort sale
3 things sellers must know about Short sales.
Underwater on your mortgage? A short sale may be an option, but you first have to convince the bank to erase part of your debt – and your credit will still suffer. 1. You have to prove hardship. To get the lender to forgive the balance of your mortgage, you’ll have to prove that you [...]
Could it happen to me??
CNNMoney: Protecting your home’s value
Foreclosures can affect the value of your property even if you’ve been paying your mortgage faithfully. Here are some ways you can protect your home’s worth if your area is hit hard by foreclosures.