Short Sale Update 3-31-10

Changes are coming to the short sale world!

It has been quite a while since my last blog post.  We have been extremely busy and are currently working with over 50 sellers and their agents.

I am sure that many of you have heard about the new HAFA or Home Affordable Foreclosure Alternative program that is coming in April. So I thought I would shed some light on it.

What is HAFA?

HAFA is a set of directives that for HAMP participating services to comply with that standardizes the documents and procedures for reviewing a short sale.  It also allows a homeowner to apply for a short sale prior to listing the property or having a contract.  If the seller has a SSA or Short Sale Agreement in place it will state the allowable net proceeds from a sale or the approved listing price and allowable closing costs including the commission.

The sellers must be HAMP eligible.

You may have heard that the commission cannot be reduced below 6%. This is not true!

If the seller applied for the program before a purchase contract is received, the servicer can specify the approved commission and it can be lower than 6%.  However, if the RASS or Alternative Request for Short Sale Approval is used after a contract is received and a SSA is not already in place, the commission listed in the listing agreement cannot be reduced below 6%.

Other highlights of the program are:

• Full release of liability for the seller
• $3,000 moving incentive for the seller
• 10 Business days for approval if an SSA is already in place
• Minimum 45 days for buyer to close

Hurdles that still exist;

• FHA, VA, Fannie Mae and Freddie Mac loans are not eligible, they have their own programs
• Second mortgages and liens must still approve and can only receive a maximum of 6% of their principal balance and must release the seller from liability.  Most seconds are currently demanding at least 10% and often leave the seller liable for all or part of the difference.
• Mortgage insurance companies must also agree.  Again, PMI companies have been routinely asking for cash or promissory notes from the sellers but are bared from doing so under HAFA. Will they agree?
• The seller may be required to give up the house in a Deed-In-Lieu if it does not sell in 120 days.  It is still debated if this has credit consequences as bad as foreclosure.

So as much as this has been touted as the “silver bullet” to the issues we have been facing with short sales, it may not be.

The program is voluntary for non HAMP participants.

The VALUE is still the key.  If the value comes in higher than what the market is really willing to pay now, an offer will never be approved.  Add to it that if the seller applies on their own, before contracting an agent, there will be no one there to try and make sure that the person evaluating the current market value of the home has every shred of evidence relating to it’s current value.  The BPO has been the biggest killer of short sales. It could get even worse with this kind of program.  In a declining market and with many BPO agents coming from outside of the market we have routinely seen BPO values come way above where any of the offers are.  We have even seen appraisals come in above the listed price or at a price that the property has been listed at for months.  If it were worth that, there would be offers!  Doesn’t that make sense?

As much as I pray that this program streamlines the system and reduces the backlog, I doubt it.  We will still be dealing with the Chase’s and Bank of America’s that have been a thorn in the system from the beginning.

It will just be another day in the office for those of us that negotiate short sales every day.  The lenders already ask for the same documents.  So what if they look a little different.  Even in this program they are allowed to alter the documents.  So one servicers documents will not be the same as the next.

They are also allowed to implement the directive “in accordance with investor guidelines“.  What does that mean?  You got me.  Servicer already review short sales in accordance with the investors guidelines.  So how does this change anything?

The only thing I can say that may be 100% positive is that the Gov’t will be paying the servicer incentives to get these done.  Of course if you pay taxes you may not think that is a good idea. But it “may” grease the wheels a little.  I say “may” because $1,500 is peanuts to these guys.   I have seen offers rejected because the offer was less than that below the acceptable net proceeds.

Let’s all keep our fingers crossed and I’ll get back to you in a couple months and we’ll see if this changes anything.

Keep in mind, FHA has had a VERY similar program since the 90’s and just the other day I called a major servicer, Citimortgage, and they told me they had never heard of it.  Typical!

Have any other questions on foreclosure or short sales?  Think you and your fellow agents could benefit from an office visit from us?  Give us a call or email us for more information about our office visits.  They’re free and always informative.

Subscribe to this blog via RSS for instant updates.

As always Visit the Ask The Expert Page to leave your questions or contact Sean Wilder directly if you need immediate assistance at sean@ctlms.com or visitwww.CTLMS.com

Short Sale Tip 2-4-10

Common Short Sale and Foreclosure Questions

In this issue of my short sale tips I thought it would be good to just throw out some of the questions I get asked from listing and buyers agents.

1. Where are you in the short sale process?

a. I love this one.  The first thing I think when I hear this question is, “this person must not have ever learned anything about short sales”.  The reason I think that is the very first thing nearly every lender will ask you when you call about a short sale is, “What’s the offer?”.  If you do not yet have one, they will tell you to call back when you do, click!  Except of FHA loans, you cannot start a short sale, without an offer.  So you are basically nowhere in the short sale process if there is no offer on the property.

That being said, my answer to that question is usually “we are ready to present an offer”.  Unless the file was only given to me a week or so ago, I will already have authorization on file with the lender and know what they will need to see with an offer.  I will have let the sellers know what they need to get together when an offer comes in, and I know exactly where I am sending it and what guidelines I am going to be working with, because I have already found out who the investor on the loan is.

Now if the house has an FHA loan, it is possible that we will have gotten as far as having a “pre-approved” short sale when I get that question.  FHA does allow you to start the short sale process without an offer and get the property and the sellers approved for the program.  They will even tell us what the appraised value is, require it be listed at that price and tell us what they need to net from an offer.  So in that case, my answered would be more specific to where we actually are in the process.

2.  A foreclosure has already been filed against my client.  Can they still sell their house?

a. What?  Of course they can still sell, they do still own it.  There are issues though.  Will it be a short sale?  How much time is left in the foreclosure process?  Can any pending foreclosure date be postponed?

Usually, if you have an offer at least 4 weeks before a foreclosure date, we can still get everything into the lender and get the foreclosure postponed so they can review the offer.  But unless it is an FHA loan, without an offer there is nothing we can do.

3. How long will a short sale take?

a. It depends on the lender and how many of them there are.  It also matters if there is mortgage insurance and who the investor on the loan is.  On average short sales take about 90-120 days from offer to closing.  However some lenders have gotten much faster, while many of the larger lenders have gotten much much slower.  Best thing to do is call us and ask.  We know how long most of the lenders are running right now.

4. I have a buyer client with an offer in on a short sale.  We have not heard anything in quite some time and we don’t know what is going on.  What should we do?

a. Give me a call and lets talk about it.  There are a few questions that a buyers rep should ask for their buyer when putting an offer in on a short sale.  Proper expectations are key to keeping buyers happy while waiting for the bank to make a decision.  I always tell the listing agents to feel free and have the buyers agent call me with any short sale questions.  I even tell them to put my info in the agent to agent remarks on the MLS if they wish.  That way any specific short sale questions can get answered quickly for the buyer to make their decision.

5. What questions should a buyers rep ask on a short sale?

a. How many lenders are there?  Who are they?  Who is the investor on the first mortgage? How long do you think they will take to decide? Who is doing the negotiations?  Do they have any experience?

With the answers to these questions I can can better answer question number 4 for you.

If you tell me you have an offer in on a property with Bank of America as the lender and it has been 3 months with no answer, I will say, you  might be half way to an answer.  Yet if you tell me that it has been 90 days and the loan is FHA, I will tell you that someone should be getting HUD involved to find out why the lender is taking so long.

6. Why should my client do a short sale if there is no equity?  They don’t get any money out of it, so just let the bank have it.

a.  Please never say this to a client.  First off, none of us, including me, should be giving legal, tax or credit advice.  Whenever I talk to a client I make it clear that what I am telling them is my opinion based on my experiences and that they need to speak with a lawyer, CPA or credit expert before making a final decision.  I also let them know that in a short sale we will get the bank to pay for them to have an attorney represent them.

In most cases a short sale is less damaging to the homeowner than a foreclosure.  Each case is unique though.  How many mortgages they have, if they are purchase money or cash out refinance loans, do they plan to file Bankruptcy for other debts….These all can alter the situation.  But in most cases a short sale is the lesser of the evil options available.  Bankruptcy can screw up your credit for 7-10 years, Foreclosure will exclude you from buying a house for 5-7 years while Bankruptcy and short sale only exclude you for 2 years.  A deed in lieu is just as bad on your credit as a foreclosure and it does not guarantee that the lender will not have to foreclose on it anyway to clear off other liens.  In a short sale we negotiate those other liens and the only mark on the credit report is an account that is settled for less than full payoff, and there is a score reduction for that.  Of course the reality is most of our clients have already trashed their credit by not paying the mortgage in the first place.

Ok, this tip is getting pretty long so I am going to call it quits for this issue.

Have any other questions on foreclosure or short sales?  Think you and your fellow agents could benefit from an office visit from us?  Give us a call or email us for more information about our office visits.  They’re free and always informative.

Subscribe to this blog via RSS for instant updates.

As always Visit the Ask The Expert Page to leave your questions or contact Sean Wilder directly if you need immediate assistance at sean@ctlms.com or visitwww.CTLMS.com

Short Sale Tip 1-14-10

Foreclosures keep getting worse!  But you can HELP!

Recently released statistics reveal just how bad it still is out there.

A record 2.8 MILLION households were threatened with foreclosure last year.  That’s up 21 percent from 2008.

In CT 25,211 foreclosure proceedings were started in the first 11 months of the year, up 28 percent for the same time period in 2008.

Nationally prices are down 30 percent from mid 2006.

The forecast is for 3-3.5 MILLION initial foreclosure filings in 2010.

So you have to ask yourself, “Why don’t more of these homeowners do something to avoid foreclosure?”

Well if you look at the pitiful statistics for the administrations Making Home Affordable program, you can see part of the issue.

The program has approved “trial” loan modifications for 760,000 eligible borrowers since it’s start last March.  But just 31,000 of those have been made permanent.  That means that just 1.1% of the 2.8 MILLION homeowners facing foreclosure have been given a permanent solution through these programs.  That is awful!

Now I think we can all agree that very few people would allow their property to be foreclosed if they knew there was equity in it that they would lose.  However it is much easier to let a house go that is under water.  So it would be fair to assume that the vast majority of the homes that are foreclosed have no or negative equity.

Traditional real estate thinking would suggest that there is nothing a real estate agent can do for that homeowner to help them get out from under that property and avoid foreclosure.

But that thinking is wrong.  Short sales are the answer.  A short sale is a win-win-win transaction, when successful.  The sellers avoid a foreclosure, the lenders lose less money and receive that money sooner, the market avoids another vacant bank owned property and the sale helps fuel the real estate industry and more.  The real estate agents, closing agents, appraisers, mortgage lenders, and even the towns get paid when that property sells.

Short sales are more and more becoming the tool that is helping keep the real estate market afloat.  The percentage of under water properties is huge and the only way those homeowners can get out from under is with a short sale.

Now I am not going to tell you that every short sale is quick, easy and successful.  But neither is every conventional sale.  But these homeowners need someone’s help and they need it badly.

Are you going to be one who helps, or passes it down the line?  I have agents bring short sales to us to negotiate who have never before had a call from a homeowner in that situation.  These agents have been in the business for decades.  They know that these sellers need assistance and that there is a path that can be taken to give these people the best shot at avoiding foreclosure and salvaging as much of their credit as possible.  So they help.

Just this week alone I have gotten calls from 4 agents that we will be working with for the first time.  All of these agents have been in business for quite some time.  I also received a number of new files for agents we have successfully worked with over the last year.  The need is definitely there.

These deals are out there and they are ripe for the picking if you are willing to help those is need.  You can have no better referral source than a seller you helped avoid foreclosure.  I know this first hand.

So the next time you get a call from a seller that is underwater and/or facing foreclosure, remember.  There is something you can do.  Even if it is just to refer that client to someone who IS willing to help them.  Better yet help them yourself and earn your commission, it really is not much more work on your end than any other sale, if you work with us to negotiate of course.  You definitely don’t have to worry about a stubborn seller, most of the time anyway.

Here is to helping as many homeowners as we can this year.  We can all do it if we work together.

Have any other questions on foreclosure or short sales?  Think you and your fellow agents could benefit from an office visit from us?  Give us a call or email us for more information about or office visits.  They’re free and always informative.

Subscribe to this blog via RSS for instant updates.

As always Visit the Ask The Expert Page to leave your questions or contact Sean Wilder directly if you need immediate assistance at sean@ctlms.com or visit www.CTLMS.com