Error message

User warning: The following module is missing from the file system: startupgrowth. For information about how to fix this, see the documentation page. in _drupal_trigger_error_with_delayed_logging() (line 1143 of /srv/users/serverpilot/apps/ronwebster/public/includes/bootstrap.inc).

TRUTHS, MYTHS AND DOWNRIGHT LIES ABOUT THE SHORT SALE PROCESS

The National Association of Realtors defines a short sale as “a transaction in which the lender, or lenders agree to accept less than the mortgage amount owed by the current homeowner.

What is a Short Sale?

The National Association of Realtors defines a short sale as “a transaction in which the lender, or lenders agree to accept less than the mortgage amount owed by the current homeowner. In some cases, the difference is forgiven by the lender and in others the homeowner must make arrangements with the lender to settle the remainder of the debt.”

PART I: PARADIGM SHIFT IN PROCESSING SHORT SALES

  1. Lender Short Sale Response Time

  2. MYTH: Banks must respond to short sale offers within ten (10) days after submission.

    TRUTH: If and only if the seller qualifies (primary residence and loan less than $729,750.00) and previously applied for HAMP/HAFA and was approved or denied under that program…then in that case the lender must respond with an acceptable price within 10 days…otherwise there are no time restraints

  3. Side Benefit of HAMP and HAFA

  4. MYTH: Banks typically take forever to respond to short sales.

    TRUTH: Through Bank of America/GMAC’s Equator System and Wells Fargo/Wachovia’s Fast Track System, lenders are no longer putting the cart in front of the horse and are promptly responding to contract values.

    Both HAMP and HAFA have turned out to be epic failures. The Home Affordable Modification process is limited in scope and applicability, so too, was the greatly touted HAFA process seeking foreclosure alternatives. However, by gearing up for HAFA Lenders were required to create a new paradigm to address short sales for those homeowners who applied for relief under HAFA.

    Previously banks focused on qualifying the Seller for a short sale. Many times the lender would take months to ascertain and review the financial information wasting valuable time before focusing on the sales contract and price.

    Today, lenders are beginning to focus first on the property value to see if there is a potential deal at the price. As a result, many times lenders now will either accept the price terms or quickly counter the buyer’s offer to seek to solidify the deal first then the next step is to address the seller’s situation and determine what, if any, contribution will be required.

  5. Market Conditions

  6. MYTH: We are in a buyer’s market.

    TRUTH: We are in a lenders market.

    We clearly are not in a seller’s market and contrary to popular belief we are not in a buyer’s market. Approximately 50% of all pending sales in Southwest Florida are either short sales or foreclosure sales. As a result… we are in a lenders market! Realize it or not lenders are the biggest players in determining the market value of properties today!

    MYTH: Lender’s acceptance of contract price is related to the ratio of the outstanding mortgage.

    TRUTH: It is all about fair market value. I have witnessed banks reject 90% of the outstanding loan balance and accept as little as 35% of the loan balance. The key component is market value.

  7. A Tale of Two Short Sales

  8. It was the best of times and the worst of times for buyers and sellers of short sale properties. Some had realtors got the memo while other realtors have unwittingly brought the market values down due to a fundamental lack of understanding of how short sales work.

    Tale Number One:

    Roger Realtor accepts a listing for a short sale. It had been listed with another realtor for the past year without any offers. Sally Seller wants it sold at any price. Roger dramatically slashes the previous list price of $600,000.00 to $500,000.00 much to the dismay of the neighbors.

    A low ball offer comes in for $350,000.00. Sally Seller recognizes she will not receive any proceeds and does not counter. Instead she accepts the offer. The property goes pending in the MLS for $350,000.00. Neighbors are angry with Sally.

    Roger submits the offer to SunTrust Bank. Serious buyers no longer look at Sally’s unit because it is under contract. Other legitimate buyer’s in the neighborhood now believe they can pick up a similar property for $350,000.00.

    Sally gets served with foreclosure papers and doesn’t respond. She believes that a pending short sale contract will slow the process down. The closing agent Roger selected for Patty isn’t very familiar with short sales and neither is Roger. They are slow to put pressure on Sally to provide the requisite information and to submit a package to SunTrust. The package is finally submitted.

    Closing Agent contacts SunTrust three weeks later and discovers that the closing package was never received. By now a default had been entered against Sally in the foreclosure action by failing to respond to the foreclosure pleadings. Closing agent submits the package a second time.

    Closing agent, having learned their first lesson contacts SunTrust one week later and confirms that SunTrust finally received the short sale package. Sally receives a Motion for Summary Judgment in the mail and files it away mistakenly believing the short sale is proceeding and this will delay the foreclosure action. Sally Seller and closing agent receive a note in the mail that the short sale file has been closed due to the fact it had not been updated with new financial information in the past 30 days. Closing agent and Sally quickly resubmit updated financials and the file is reopened.

    Sally then receives notice that the judgment in foreclosure has been granted and a sale date has been set. Sally, Roger and closing agent quickly panic and exert lots of pressure on bank to respond. Five days prior to the foreclosure sale the bank rejects the sales contract as it is not supported by B.P.O.’s of $550,000.00. Sally cannot stop the train and is foreclosed upon. Her credit is tarnished. Roger loses his commission.

    Legitimate buyers who would have paid close to the market value were not given an opportunity and now have a deflated amount of the true market value stuck in their head. The buyers believe every other property is overpriced and climb back onto their fence. Roger unwittingly just brought the market down and allowed his client to be thrown under the bus. The neighborhood now has a stigma of another foreclosed property.

    Tale Number Two:

    Sam Seller is desperate to sell his property which has been on the market for two years. His previous listing ran out and he engages Rachel Realtor to list his property. Rachel does a comprehensive market analysis and determines the value of the property should be approximately $625,000.00. She suggests a list price of $595,000.00 which is no more than 5 % under market value. She correctly believes some small concession should be made because after all it is a short sale.

    Sam quickly receives a low ball cash offer for $475,000.00. He turns to Rachel and she recommends he counter at $575,000.00. The buyer walks away. Sam continues to fall behind in his mortgage payments and foreclosure action is commenced. Sam pays $1,500.00 and hires Slick Willie to defend him in the foreclosure action. Slick Willie files a Motion to Dismiss the foreclosure action on a technical basis and brings the foreclosure proceed to a grinding halt.

    Rachel receives a second offer this time for $550,000.00. Again she encourages Sam to counter at $575,000.00 and the second buyer walks away. Sam starts to get nervous but Slick Willie assures him the new set of defenses he filed with the court will buy him even more time to sell.

    A few more months go by and Rachel receives an offer this time for $535,000.00. She encourages Sam to counter at $585,000.00. After much negotiation the parties split the difference and agree to a purchase price of $560,000.00. The contract is promptly submitted by Slick Willies knowledgeable closing agent to the bank. The bank recognizes the contract was vigorously negotiated and conducts their own B.P.O. They concur with Rachel’s initial assessment, the property is worth approximately $625,000.00. Rachel points out that the values have since decreased and provides documentation that the property is worth no more than $600,000.00 but actually believing it to be approximately $610,000.00.

    The bank accepts the short sale because it fits within their parameters. The buyer is happy because he is picking up the property for $50,000.00 under market value. The neighbors are happy the property was not foreclosed. The realtor was happy to receive the commission, the closing agent was happy to collect a closing fee and issue title insurance. Most of all, the seller was happy because Slick Willie helped negotiate a $200,000.00 mortgage short fall into a small no interest note which he would come back again and negotiate further.

    Yes, for the seller, neighbor, realtor, closing agent, attorney it was the best of a bad situation because the parties truly understood the short sale process.

PART II: Why Short Sales are better than a Foreclosure?

  1. For the Buyer simply put- it’s a good deal! Short sales allow buyers an opportunity to pick up a property at 10% (and in some instances up to 15%) below true market value. If they promptly conduct inspections any serious repair issues will be considered by the lender, if accompanied by estimates at the time of submission to the lender. Short Sales unlike many foreclosures allow a buyer to have time to obtain financing for closing.

  2. For the Seller it allows them an opportunity to save their dignity and control their destiny whether it be through minimizing or eliminating the potential of a deficiency judgment or salvaging their credit score. According to David Steep, Division Manager at Vitek Mortgage, a foreclosure or deed-in-lieu of foreclosure will tarnish a seller’s credit score from 200 to 300 points where a short sale is would more likely reduce a FICO Score 100 to 200 points. Additionally, Fannie Mae/Freddie Mac most recently announced new guidelines which stated a short sale will allow a consumer an opportunity to obtain a conventional loan within 2 years (24 months) to five years (60 months) if they had been foreclosed.

  3. For the Lender, time is money. Short sales allow the lender to avoid the court process and attorney fees associated with foreclosure. Lenders also avoid maintaining and managing the property. Most importantly, lenders are now recognizing that statistics have shown that the vast majority of rejected short sale offers were actually higher than what the foreclosed property ultimately sold for.

  4. For the Realtor the benefit is a local control. Quite often when lenders take back properties they bypass the local board of realtors. Bank REO’s (Real Estate Owned) are typically managed at a central location. These people are not local and unfamiliar with neighborhood market conditions. The properties are poorly maintained and create an even greater stigma for the neighborhood. Lenders dictate the pricing as well as the listing and closing agent. Quite often this leads to lost local revenue among numerous other legitimate concerns.

  5. For Neighborhoods values. Every time there is a foreclosure, property values go down. When lenders take back properties everyone loses. Many neighborhoods and condominium complexes are stuck with the stigma of poorly maintained properties with deflated values. For condominium associations it often results in lost fees as banks are limited by statute to be responsible for no more than 12 months of past due maintenance.

MYTH: It may be better to let the bank foreclose.

TRUTH: Watch out for deficiency judgments.

A deficiency judgment is the difference between the amount owed to a lender and the fair market value of the property at the time of the foreclosure sale. For example if the outstanding mortgage balance is $500,000.00 and the fair market value of the property is $350,000.00 the lender may elect to pursue a claim for the difference (deficiency) of $150,000.00.

Unfortunately, borrowers have no control when it comes to deficiency judgments. The ball is solely in the lender’s court since lenders have the legal right to pursue the full amount of any deficiency. When the promissory note was originally signed at the time of purchase or refinance, the borrowers legally obligated themselves to pay the full amount. Whether or not the lender elects to pursue is at the lenders discretion and usually not determined until the last minute.

If lenders decide not to collect the deficiency, they may cancel the debt. Provided this is not the borrower’s primary residence the lender may elect to report the cancelled amount to the IRS as taxable 1099 income. Contrary to popular belief, a deficiency judgment can often be pursued even when handing the property back through a deed in lieu of foreclosure unless the bank agrees, in advance to cancel the debt.

To the extent that lenders will pursue a deficiency judgment is based upon many variables. The greater the assets the borrower has, the greater the likelihood the lender will pursue a deficiency judgment. Contrary to popular belief, not all lenders are mentally challenged. The first thing a lender will do prior to making this election is to review your original loan application as well as any financial updates the borrower may have provided.

As a direct result of the potential of a deficiency judgment I encourage borrower to avoid foreclosure as the safer course of action is through the short sale process. Unlike a foreclosure action where the borrower has no control over a deficiency judgment, in contrast, if the property can sold through a short sale, the borrower avoids the stigma of a foreclosure on their credit report and avoids a deficiency judgment.

Additionally, by working with the bank in negotiating a short sale, a resolution may be brought to conclusion regarding the deficiency amount. Many times a bank will release the borrower completely, depending upon the assets and financial position of the borrower as a reward for bringing a buyer. In other instances the bank will negotiate an agreed amount which most often is a deeply discounted sum settling for cents on the dollar in the form of a newly executed promissory note.

My experience has taught me whenever possible foreclosure avoidance is the better solution for the borrower. Walking away from the problem by allowing the property to be foreclosed can open the door to a deficiency judgment for the entire amount of the difference. To me, this behavior becomes a game of Russian roulette.

MYTH: Short Sales lead to 1099C’s which should be avoided.

TRUTH: In most instances, 1099C’s should be embraced as welcome relief.

Many Sellers are under a great deal of misinformation about the applicability of the issuance of IRS 1099 forms as related to short sales.

When a bank forgives debt in reality the benefit the taxpayer receives is the same as receiving income. Banks that accept short sales and forgive all or part of the debt are obligated, as a matter of law, to issue a 1099C to the taxpayer. In many instances banks are so overwhelmed they simply have been derelict in issuing 1099C’s to their sellers. Although many IRS regulations can be confusing it is easy as 1, 2, 3 to understand as they relate to short sales.

1099C’s can be a blessing in disguise.. A bank cannot forgive a debt as well as pursue it! By issuing a 1099C the lender is making an election of remedies. In the State of Florida, case law provides that a party electing one course of action should not be permitted to avail itself of an incompatible course. For the doctrine of remedies to apply, the remedies must be co-existent and inconsistent. A lender cannot both forgive as well as pursue a debt. In short, you cannot have your cake and eat it too!

  1. Principal Residences. The Mortgage Forgiveness Debt Relief and Debt Cancellation Act is in effect until December 31, 2012. Under this law, sellers of a primary residence are forgiven up to Two (2) million of debt, if married and one (1) million if single or married filing separately. Do not confuse this with the capital gain exclusion of $500,000.00 and $250,000.00 respectively. Put another way, if an individual sells his primary residence there basically will be no tax consequence for a short sale.

  2. Rental Properties. If the property is a rental property or has been rented in the past and appeared on previous tax returns then the transaction may be treated as a business loss. In this instance, the income received (debt relief) will be washed away by the business loss (sale of the property) on a dollar for dollar basis. In short, for income producing properties, provided the property is sold at a loss, typically there will be no tax consequence for a short sale.

  3. Soley Second Homes, Vacant Lots or Speculative Buying. In these instances you may get spanked by the IRS. If you never rented out your property, find a way to do so. Without treating the property like a business a taxpayer cannot claim the corresponding business loss. If a lot or a condo was purchased for purposes of flipping and was never rented you will feel the pain of a 1099. Provided money was lost on the investment capital losses may be carried forward to offset some of the gain, however, these losses are deemed capital losses as opposed to ordinary business losses. As a result, the 1099 will only be marginalized slightly by the capital loss.

In summary, principal residences are virtually immune from 1099’s. As to all other properties it is time to find a creative CPA that will classify and treat this property as a business and just not a bad investment.

MYTH: Take multiple offers on short sales to present to lender.

TRUTH: Submit your best offer one at a time.

Multiple offers can create multiple minefields. If the Seller has already accepted an offer, any subsequent offer must clearly be disclosed as a back up offer.

Many buyers are under the mistaken belief that all offers must be presented to the bank. Particularly when those subsequent offers are for a higher purchase price.

The truth is that until the bank takes title to the property at a foreclosure sale, the sole discretion for accepting and presenting all offers to the bank lies solely with the property owner/seller. There is no legal requirement for the Seller or Listing Agent to submit any subsequent higher offer to the bank.

In fact, it is the policy of many banks not to consider multiple offers. On numerous occasions we have been instructed to only submit one offer at a time. It is our office policy that provided we are in the very early stages of the short sale process we will submit a subsequent higher offer. However, if the subsequent offer, which must be taken as the back up offer, comes in a month later, this will most likely cause havoc in the short sale process. Banks often become stymied and typically put the file on hold if they believe multiple offers might be coming in to get the highest and best offer. Unfortunately, without a timely response many buyers will often walk away and there will be no deal.

If a seller is insistent on working with the initial offer he is entitled to do so. The bigger the price gap becomes the Seller’s problem, as it is their responsibility to work out any short fall with the bank. As to the frustrated Johnny come lately Buyer, the response should be, “where have you been?”

MYTH: Sellers cannot receive funds at closing.

TRUTH: The answer is yes, provided there is legal justification.

Furnishings (personal property) are not secured by a mortgage. A mortgage is granted based soley upon the value of the real estate. As a result, there is nothing wrong, immoral or unethical for a seller to sell his personal property to a buyer and receive a separate check outside of closing for furnishings, a car, a boat, etc.

In many instances, personal property can be an excellent tool to collect additional funds when a second mortgage is involved and there are not adequate funds to satisfy the demands of the second mortgage holder. On countless occasions the proceeds from the furnishings have been utilized to secure a release of the second mortgage that the first lender refused to pay.

One road block to this approach, is that the first lender will often require an Affidavit to be signed at closing stating there are no other agreements between the parties. In order to avoid this problem I have suggested that the personal property be sold to a spouse, son or daughter of the buyer who is not a party to the sales agreement. By entering into a separate agreement with someone who is not a party to the original contract no disclosure is required since the seller has the legal right to sell his or her belongings, hence no bank fraud.

Watch for bank fraud…unfortunately, I have witnessed many sellers abuse this legal right by artificially deflating the true value of the home and selling the personal possessions for an artificially inflated amount. By participating in this practice agents become complicit in what is tantamount to bank fraud…falsifying the true market value to allow the seller to fraudently receive considerably more funds at closing then they otherwise are truly entitled to receive.

Self justification for these practices lie in the fact that sellers as well as agents believe that the bank accepted the price for the house and therefore, no harm, no foul. Unfortunately, the bank often looks soley at the contract price and can be easily misled. In essence banks are fraudently induced to believe the contract price represents the actual market value. Unfortunately, these abusive practices only lead to a deterioration in values and should be avoided at all costs.

MYTH: Wait to commence inspections once the short sale has been approved because the effective date for inspections does not commence until the date of approval.

TRUTH: It is true with regards to the effective date, however, if a problem is discovered the property is being sold “As Is” and there will be no credits given at closing, why wait 60 to 90 days for a deal to fall apart?

If the buyer is serious and the offer is competitive it is worth $300.00 to inspect the property upfront. If a serious defect is discovered, quickly obtain an estimate and submit that as a credit with the net closing sheet or amend the contract price to reflect the defect. If a bank is aware of a major repair up front they will take it into consideration in approving the sale. Once they agree on a price, they will not revisit the approval letter based on a subsequent inspection.

MYTH: When the bank fails to address the shortfall in the approval letter that is a good thing.

TRUTH: Perhaps. But it may open the door to serious problems down the road.

Whenever possible seek to bring a resolution to the shortfall. Obtain an agreement it will not be pursued or try to negotiate a greatly reduced note. Anytime a note is involved I view this as a two step process. Renegotiate again six months following the sale when the bank no longer has any leverage.

If the bank gives you no choice and retains there rights, remain suspicious. I still recommend accepting a reservation of rights over foreclosure. In both cases the door is left open. Hope for a 1099 following a short sale for reasons discussed above.

PART III: TIPS FOR CLOSING SHORT SALES

Creating and Managing Expectations

Buyers: When working with a short sale buyer, education is the key. The property is most likely extremely aggressively priced to begin with. The offer need not be for full market value but it must be reasonably close. Banks are not concerned about percentage of the offer to the outstanding mortgage. They are concerned how close the offer is to fair market value. Experience has taught me any offer less than 85% of fair market value will be summarily rejected.

Sellers: When working with a seller it is critical to obtain their commitment and cooperation. Sellers must recognize that this is a long arduous process as well. Prepare the seller that numerous items will be required of them.

Sellers as well as some agents are often under the misconception that once our office receives their sales contract, we are able to submit the offer to the lender. To the contrary, lenders will not accept or even look at the offer unless certain items from the Sellers are submitted.

To expedite the process, have the seller start getting the following items together, preferably when the short sale listing is signed and at a minimum when the sales contract is signed. Note: A lender will not customarily process a short sale file without a bona fide contract as they typically view this as putting the cart in front of the horse.

  1. A written authorization signed by the seller authorizing the realtor and the closing agent to speak on behalf of the seller.

  2. A copy of the listing agreement. Be sure to include several price changes where applicable, to demonstrate no previous buyer response in current market.

  3. A signed contract of sale.

  4. Preliminary net sheet (settlement statement) prepared by the closing agent.

  5. Completed updated financial statement form.

  6. Two years of tax returns.

  7. Hardship Letter.

  8. 2 months pay stubs (if applicable)

  9. Comparative Market Analysis prepared by the realtor. Often banks require and order their own appraisal as well.

  10. Proof of funds. Typically, the lender will request the buyer show proof of funds for the closing. If a lender is involved, we need a buyer approval letter. If this is a cash deal, a bank letter demonstrating they have ready funds to close.

Seller should be aware it typically takes the lender 10 days to get this information into their system, therefore, you are not likely to get any information or updates until after this timeframe. Some lenders may even take longer.

Strategies for dealing with hesitant short sale sellers:

Many times sellers ill advised and suggest they would prefer to allow the bank to take the property back through foreclosure. It is important to point out that is a losing proposition.

  1. Inform sellers of the adverse effect a foreclosure will have on their FICO Credit Score versus a short sale as well as the ability that will afford them to obtaining financing again once they are financially sound.

  2. Advise sellers of the potential for deficiency judgments if they allow themselves to be foreclosed upon.

  3. Debunk the myth of 1099C’s and the impact they may have unless this was strictly a second home. Explain the doctrine of election of remedies.

Common Short Sales Frustrations

The rapid increase in the number of short sales and the process itself has created a tremendous challenge to the real estate community due to countless reasons including:

  1. Limited understanding. Most Buyers and Sellers are not fully aware of the short sales process and how it truly works. Even if the REALTOR is experienced, his or her counterpart may not be which makes negotiating short sales extremely difficult and challenging.

  2. Absence of a uniform process and application. Currently, both short-sales documents and processes are lender specific, making it very difficult and time-consuming for REALTORS to become knowledgeable and efficient in facilitating transactions with various lenders. The general rule with short sales is there is no general rule.

  3. Lack of Communication and Authority. The response time varies greatly. It is very difficult to communicate with the Loss Mitigator assigned to the file. They are notoriously slow in retuning calls and very rarely provide email addresses. Most of all it is extremely rare to ever speak to someone of authority.

  4. Multiple Submissions. Lenders often lose documents which require multiple submissions. Lenders are unorganized and deluged with paperwork and it is not uncommon to remit the same short sale package multiple times. In other instances lenders may close out a file without warning if the financial information has been updated during the previous 30 days.

  5. Second Mortgage Issues. When more than one lender is involved the negotiations are much more difficult. Many times the second mortgage holders can be roadblocks to successful short sales. Second lien holders often hold up the transaction to exert the largest possible payment, in exchange for releasing their lien, even though in foreclosure they will receive nothing. Issues which arise include:

    • The first lender will always limit and dictate what the second mortgage holder will receive from closing. The most common unwritten rule is to throw a small bone, typically $3,000.00 to $5,000.00 to the second mortgage holder to obtain their release.

    • Often second mortgage holders will not commit to a number until they see a settlement statement approved by the first lender. This creates a time crunch problem.

    Top Ten Short Sale Deal Killers

    There are many ways for short sales to fail. Below is a list of the most common reasons why many have:

    1. Offer an unreasonable price. Short sales are already aggressively priced to begin with. The number one deal killer for short sales is having the buyer submit a totally unrealistic contract price.

    2. List the buyer’s name and/or assigns. Lenders are always suspicious of fraud in short sales. If they suspect that the buyer may be flipping the property for profit they will not consider the short sale.

    3. Do not ask for a deposit. Without a deposit there is no commitment from the buyer and no legal contract. If given the chance, some buyers will tie up multiple properties and distort the integrity of pending sales.

    4. Request a complete release for seller in other terms and conditions. Often lenders have countless files to deal with and don’t like the terms to be dictated up front to them. Save this argument for the approval process.

    5. Submit multiple contracts to the lender like an auction. While practices differ from lender to lender, most lenders will only look at one offer at a time so it is often wisest to submit the best and highest offer from a committed buyer with a deposit.

    6. Request that seller provide credits. Ironically, we receive contacts requesting seller to pay buyer’s closing costs. Lenders will not agree to pay more than the owners title insurance and sellers seldom bring anything to the closing table.

    7. Submit an incomplete seller’s package. Although lenders do not have strict underwriting guidelines for approving short sales like they do for approving loans, all lenders require completed financial package which includes all of the seller items set forth above.

    8. Submit an inaccurate or outdated settlement statement. Perhaps the number one source of frustration is that when a bank accepts a settlement statement it is accepting a bottom line figure. Often agents, in haste, fail to look into past due taxes, condominium liens, assessments. Other times taxes and maintenance are prorated just 60 days out yet it takes 120 days to approve. Guess who typically eats the short fall? Be safe – use 150 days out as a general rule for proration.

    9. Failing to promptly address the second mortgage holder (if applicable). If two mortgages are involved, two approvals are necessary. Typically, the first lender, once approved, will insist on closing within thirty (30) days. Often this does not allow enough time to begin negotiations with the second lender. Start the dialogue upfront.

    10. Letting the seller be foreclosed upon. Foolishly, approximately 90% of all foreclosure complaints go unanswered. If the seller has a foreclosure action filed against him he can easily forestall the process up to 12 months or longer to allow a short sale by engaging an attorney to file a response on the seller’s behalf. Frustrating foreclosure attempts can do wonders for negotiating a short sale.

    Communicating with Lenders

    Probably the biggest key to success with short sales is consistently communicating properly with the lender. Many short sale files are closed due to the fact that information submitted becomes stale and no communication has occurred during the preceding 30 days.

    1. Label everything. Documents sent to a lender should be no different than labeling a test tube on blood samples sent to the lab. Making sure every document has the sellers name and loan number makes it easier for the lender to process.

    2. Be patient. Buying property is stressful enough for buyers and sellers and short sales take this to a new level, however, spending a couple of hours a day trying to push the lender for a decision is a bad idea. Every contact you make to a loss mitigation call center or negotiator gets logged into the contact data base. Too much contact will give them an incentive to tank your deal. There is no reason to call so often unless there is a promise of something by a certain date. The idea of pushing a lender for a decision is human nature, unfortunately, it doesn’t work.

    3. Be polite. Servicing lenders typically do not like real estate agents or attorneys. They view our profession as pushy, rude arrogant and obnoxious. The call center employees and negotiators are low paid employees with a lot on their plate. Whenever possible be empathetic and use self deprecating humor. People like to work with people they like.

    4. Be persistent. This does not mean be annoying. One of my most successful tactics in dealing with people in decision making positions is to be the persistent student. Rather than being the "know it all" no one likes, I often get them to teach me something even if I know the answer. By getting them to teach me things they often go out of their way for me and do things behind the scenes to help resolve issues. On more than one occasion I have been put on hold while an individual has walked to another department just to resolve a problem.

    Sidenotes

    Bank of America Equator System. Bank of America recently sent out a memo in regards to to processing short sales through Equator:

    Fact #1: Your acceptance of the counter offer does not mean the transaction is approved.

    Acceptance of the counter offer means that Bank of America will take the next step of presenting the transaction for approval to the investor. In some short sales, multiple approvals may be necessary from others including the second lien holder, mortgage insurer and Bank of America senior management.

    Fact #2: The terms of the accepted counter offer may be approved, declined or changed.

    Any of the parties reviewing the transaction can change the terms of the transaction, approve or decline it.

    Fact #3: The counter offer may have an expiration date.

    Please reply to the counter offer before the expiration date. If you don’t reply by the expiration date the transaction will be rejected and you must restart process by initiating the short sale and resubmitting documents.

    Fact #4: The counter offer must be accepted via the offers management tool in Equator.

    To accept the counter offer, go to the “Workflow” section of Equator and select the “Offers Needs Response” link. Select “Counter Offer” and press the “Accept” button in the Counter Offer Screen. You cannot accept a counter offer via an Equator email to your negotiator.

    SELECTING THE RIGHT CLOSING AGENT

    According to Woody Allen, “Eighty percent of success is showing up!” This may be true in most instances, however, not with handling short sales.

    My experience has taught me that when the buyer and seller select the same closing agent the success rate goes up dramatically. I do not view this as a conflict since both parties have the common goal of seeking the lender’s acceptance. Buyers can be assured of the actual progress of the file. Additionally, there are many balancing acts which are often be required including agreements outside of closing that can best be balanced by one closing agent.

    At the Law Office of Ronald S. Webster we would welcome the opportunity to assist you in processing and successfully closing your short sale. Should you have any questions please don’t hesitate to contact us at [email protected] or email me directly at [email protected].

ABOUT THE AUTHOR

Ronald S. Webster has practiced Law in Collier County with a principal office on Marco Island since 1986.
Contact Ron