Putting the 'short' back in short sale
Tips on how to make process go smoother
By Steve Bergsman, Friday, July 17, 2009.
Flickr photo by Letheravensoar.Lately, homebuyers are seeing more and more short-sale opportunities, but it seems as if fewer purchases are actually being completed. The perception in this case is correct. The short-sale process has become a nightmare: it goes on forever, sometimes never coming to a satisfactory conclusion even after months of effort.
All I can say is, "Hang in there, folks, help is on the way."
According to industry sources, the playing field will soon begin to make more sense to buyers as servicers (the folks who actually handle your loan) will either move at-risk loans to special servicers that are experienced in this field and/or set parameters ahead of bids.
"There are going to be a lot more short sales coming into the system," predicts Scott Thompson, a principal in Mortgage Resolution Services Inc. in Rancho Cordova, Calif. "Servicers have done a lousy job. They know it and are now looking to solve the problem."
This is a necessity, Thompson adds, "as right now the queues are long and getting longer day by day."
The short sale seems complicated -- mostly because it takes so darn long to accomplish -- but it's not. The basic short sale happens when the proceeds from the sale of a property are less than the balance owed on the loan (secured by the property being sold). The key in all of this is the lender accepting a price that is less than the amount owed on the property -- and the lender would do that to avoid a foreclosure situation, which can be a lengthy and sometimes costly process.
For buyers, a short sale is the chance to acquire a property at discount.
More often than not, however, the process has been gummed up. The numbers I hear are: just one to three out of 10 applications get accepted; and while the process can take as little as 45 days, it has been taking on average 90 to 120 days with some wayward dealings going on for nine months.
The principal difficulties in the process can be isolated to the agents (especially the listing agents!) and banks. Let's start with the latter first because things on this side of the process are changing.
According to Thompson, a number of major servicers including Fannie Mae, JPMorgan Chase & Co., Citigroup Inc. and OneWest Bank Group (formerly IndyMac Bank) are putting systems in place to more easily identify which borrowers have attempted loan modification programs and failed or are well into the default process. Secondly, and this is a key point, they are going to give price certainty in the case of a short sale; the servicers will give price guidance, telling the agents a price range for the short sales.
Finally, many of at-risk loans will shift over to a special servicer, an asset manager experienced in handling REO situations.
"The special servicers will run a determination on these properties as which should come to market, engage in an outreach effort to the homeowners so as to avoid foreclosure and if all else fails to bring the property to market with pricing guidance where the buyer will know that a deal won't fail because of price," says Thompson. ...CONTINUED
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Submitted by Paula Henry on July 17, 2009 - 4:39am.
Steve - almost sounds too good to be true! I list many short sales and the frustration of the bank taking so long the buyers walk has been a huge obstacle to getting these closed in a timely manner.
To think we could have a price range to work from before we go on the market is idea. When I tell banks I need approval on an FHA loan before we list, they think I am a bit crazy, telling me to bring an offer first. I've had to fight a few - but having a price upfront relieves a lot of anxiety for the buyer, seller and agents.
Streamlining the short sale process is a step forward in reducing the amount of foreclosures.
One question - Will there be cooperation from PMI companies?
Paula Henry, Realtor
Indianapolis
Blog: http://IndyRealEstateTalk.com
Submitted by Sid Kirkland on July 17, 2009 - 5:04am.
Steve,
This was a very good article. I hope you are right about the changes that are coming to the Short Sale process. The banks need to understand that hundreds of millions of dollars have been lost due to their lack of expediting short sales and making a decision before buyers walk away.
You would think that banks would understand the concept of "time" in a declining market. I had buyers on one transaction that took 9 months to Close and during that time we dropped the offer to the bank by $50,000 due to the time it took and continuing erosion of market value. I put in a statement to the bank that they could incur the loss as they were still holding the property.
Submitted by Tim Burrell on July 17, 2009 - 5:29am.
Great article. I had one short sale outsourced by the lender to a special organization properly trained to review it. My short sale package was submitted on Monday, the sale was approved on Friday. So, the new effort by the lenders discussed in this article could greatly improve the system.
The Foreclosure Alternative Plan that is part of the Making Home Affordable effort by the Treasury specifies an improved system for short sales, similar to that in the article. It came out in May, but I have yet to find a lender who has implemented it. In that program, the seller will enter into an agreement with the lender for the short sale, the lender will do a BPO or appraisal and let the seller and listing agent know what price range would be acceptable for a sale, then the lender will review whether the seller qualifies for a short sale (hardship, financial condition, etc). All this would be done at the time the property is listed. So, when an offer comes in, the only review remaining is to see if the offer provides a price and terms acceptable to the lender. This would greatly speed up the process for the buyer, who would have much less time to wait.
The discussion of back up offers is correct, any offer after the original is signed has to have a back up offer addendum. However, certain states like North Carolina mandate that subsequent offers that are better than the original have to be disclosed to the lender. While the subsequent offer is a back up offer, the original offer should be told of the existence back up offer (but not its terms) and be given an opportunity to improve their offer. If the back up offer ends up being better than the original, the lender can reject the original offer and accept the back up.
I teach a class approved by the North Carolina Real Estate Commission on short sales. I provide a free website that is an encyclopedia of information for Realtors to use on short sales at www.CreateAShortSale.com. This article's discussion of how the listing agent needs to be educated and experienced is correct. For example, the short sale package should be created at the time the listing is taken, so all you need is an offer and a HUD-1 (closing statement showing the proceeds to the bank) to complete the package. Having a complete package greatly expedites the review. Agents can also learn how to do short sales from my book, Create A Short Sale.
If we all pitch in to do short sales, there will be less foreclosures, better results for the banks, better values for the neighborhoods and a quicker economic recorvery. Thank you for the article with good news and good information for short sales.
Submitted by Robert A. Hulme on July 17, 2009 - 5:31am.
You can have them. The present process has made me take my buyers elsewhere. I prefer to show Bank Owned Properties because they usually have great value and they can close very quickly. I would love to see the process change and will continue to monitor whether they are successful or not.
www.UtahCountyForeclosures.us
www.ExitUtahRealEstate.com
Submitted by Mike Nicksic on July 17, 2009 - 5:38am.
Deep in our hearts most of us realize lenders have no compunction whatsoever about making hapless servicers and agents churn endless paper. Putting servicers and agents ride the "Short Sale Hamster Wheel" makes perfect PR sense so long as the press equates evidence of activity with responsibility for outcomes.
There is not a shred of evidence that lenders are giving anything more than "lip service" to either short sales or loan modification. My suspicion is that they are expecting yet more Federal largess and will never put red ink on their books until all hope of bailout fades.
If accepting short sales to avoid foreclosure or carrying costs makes sense, simple accounting logic says some price exists between the face value of the loan and the short sale at which re-setting the loan yields equal or higher return to the lender.
Since resetting the loan avoids not only legal costs but also all the transaction costs of outright sales (commissions, etc) the competitive reset pricing might be at parity or even below the short sale market price.
On balance it appears the story your article spins is less credible than the immutable intransigence of the cold-hearted banker.
Submitted by Paul Francis, CRS on July 17, 2009 - 6:36am.
You completely forget to mention the necessity of being able to qualify a seller for a short sale in the first place.
"but it seems as if fewer purchases are actually being completed"
???????????
"The short sale seems complicated -- mostly because it takes so darn long to accomplish -- but it's not."
If you want to start writing about short sales... you need to keep in mind that when it comes to this Specialty... No two sellers have the same finacials, same loan and/or same hardships. To suggest that the main thing involved with a short sale is:
"The key in all of this is the lender accepting a price that is less than the amount owed on the property"
... is probably the reason why your sources say only 1 to 3 out of 10 applications get accepted.
Out of those 10 applications... probably only 5 of them have a true hardship to qualify and out of that five... two to three of them waited too long because they read too many articles / hear that a short sale is a waste of time, or were strung along forever from false promises about a loan modification... and then give us only a week before the final stage of the foreclosure to put their packages together, list the property and find a buyer.
Granted... it would certainly help out if the loss mitigators were not working on 500 files each to help speed up the process...
Regardless... articles / interviews from the pros that are closing 75%+ of their short sales would be far more beneficial then complaining about the process.
Then...Maybe... just maybe the bogus applications for a short sale from sellers who just want to get rid of their liability would be cut down and the loss mitigators could concentrate on the sellers who truly do have a hardship and are just trying to do the right thing instead of just walking away or mailing in the keys.
Of course... that is going to involve more education on what qualifies for a short sale to begin with. Something that is completely lacking in mainstream real estate journalism when it comes to articles concerning short sales.
Paul Francis, CRS
Prudential Americana Group
www.LasVegasRealEstateHome.com
702.592.3058
Submitted by Peter J. Pike on July 17, 2009 - 9:37am.
As an attorney in Northwest Florida who has been handling short sale negotiations for Sellers for the last 2 years (OMG, is it really that long!), while I agree with the gist of the article, I have to take issue with the statement that "it seems as if fewer purchases are actually being completed."
Our experience is the opposite. Offers that are not realistic are not being accepted by sellers. Packages, including full information on comparable sales, comparable listings and a complete MLS history on the subject are being put together at the start of the process.
Yes, it is taking forever (our average is probably 120 - 150 days), but we are seeing lender approval in the vast majority of our deals. The biggest obstacle that seems to be overcome is letting buyers and sellers know up front how long it takes, and writing contracts that allow for the process to go through.
Peter J. Pike, Esq.
McNeese Title, LLC
Destin, Florida
Submitted by Ben Nicolas on July 17, 2009 - 10:47am.
asking a seller to commit to a buyer is only fair if a buyer is willing to put a non-refundable deposit into escrow that can be used to make 2-3 months of mortgage payments to the lender if once the short sale is approved the buyer doesn't perform. Any experienced short sale listing agent knows that most buyers who make offers on short sales don't stay loyal to the transaction so a seller would be shooting themselves in the foot to stop marketing the property after they receive the first offer.
M. Ben Nicolas
IET Real Estate
www.ietrealestate.com
Submitted by Ben Nicolas on July 17, 2009 - 10:51am.
and we close much more than 30% of all the short sales we open because we understand the process and are extremely persistent:
www.ietrealestate.com/short-sales.php
M. Ben Nicolas
IET Real Estate
www.ietrealestate.com
Submitted by Waco Moore on July 17, 2009 - 11:44am.
The Short Sale process HAS been reinvented. This summer’s latest changes to the Making Home Affordable program completely alter the Short Sale process – new guidelines, new processes, and new paperwork. The Treasury department, Fannie Mae, and the Mortgage Bankers Association have extensive training efforts going on now to bring the Loss Mitigators up to speed on the program details.
Here are a few details of the new program:
--There is a specific step-by-step loss mitigation process, which in the case of a homeowner with a valid permanent hardship starts with an attempted loan modification (interest rates as low as 2%, term as long as 40 years, plus other generous provisions).
--If the homeowner is not eligible for a loan modification or goes into default again, then the loss Mitigator must consider a Short Sale by determining if the lender will net more from a Short Sale or foreclosure. There is a specific formula for this.
--IF a Short Sale is the better financial alternative, the Servicer will independently establish the property list price, possible price reductions, and the minimum acceptable net return.
--The Short Sale Agreement will specify “reasonable and customary” real estate commissions (but not more than 6%). Good news--The Servicer/Lender will agree to not negotiate a lower sales commission after an offer has been received!
--An appraisal or BPO ordered by the Servicer will be used as a Short Sale pricing resource
--Marketing time for Short Sales is defined as from 90 days to one year
--The mortgage insurer and subordinate lien holder(s) must also accept a Short Sale
--The homeowner receives a relocation payment upon conclusion of a Short Sale.--If a Short Sale does not work, a Deed in Lieu of Foreclosure (DIL) is attempted (often this is agreed upon up-front when Short Sale Agreement is signed).
--Any junior liens, mortgages or other debts against the property must be cleared, or there must be a reasonable belief than all liens can be cleared, before proceeding with a Short Sale or DIL. Treasury will share in the cost of paying junior lien holders (up to $1,000), matching $1 for every $2 paid by investors.
This is a somewhat simplistic outline of just some of the new program details. There is much more to know.
It is important to understand that there is only ONE point along the “Loan Workout Hierarchy” process where a Short Sale will be considered.
The Loss Mitigator approves a Short Sale attempt in advance and controls the pricing and listing term. There are newly required forms and rules. This is an attempt to standardize and streamline the process. The ironic thing is that as Realtors we have complained about the Short Sale process (and rightly so), but now we run the risk of being the group that slows the process down if we are not up to speed on the new rules of the game.
If you had Short Sale training before mid-summer, forget most of what you’ve learned, because it’s a whole new ballgame! You must know The Making Home Affordable Program in detail. Let’s hope we can hit homeruns for our sellers and not strike out because we don’t know the new rules of the game.
With the foreclosure rates on jumbo loans now double that of conventional loans, our members at The Institute for Luxury Home Marketing have asked us to develop a training program that covers the new programs (including the Mortgage Debt Forgiveness Act – not all debt is forgiven). Our new Short Sale program will be available Online in early August. It covers all price ranges and has a special module on luxury home Short Sales – there are some differences. We’ll be announcing details very, very soon. http://www.LuxuryHomemarketing.com/shortsale/
The mortgage industry is now challenging the Realtor community to learn what we need to know to work effectively for our homeowners – I think we are up to the challenge!
Submitted by Fred Roven on July 17, 2009 - 12:18pm.
We are seeing a very bizarre situation where service companies are placing listings with offices outside our market area. Some of the offices we have called (and these are brokers) do not even know that 80% of the agents here have no idea the property is even being offered.
Appraisals are another story. We recently had an appraisal come back and comps included distressed properties in a neighboring community for the least expensive property available in our town and the property had a near perfect home inspection. At first I thought banks just did not want to sell their inventory. Now I believe the service companies are just leading them astray.
Submitted by Wenceslao Fernandez Jr, BS, Realtor, CDPE on July 17, 2009 - 1:52pm.
Great article. I must agree with a lot of what's said except, as with Mr. Pike from Destin, Fl, and as suggested in the article, I also find that it is the completeness and professionalism of the hardship package preparer that makes a huge difference (often all the difference).
Occassionally, things go awry with some lenders or servicers. This probably coincides with changes in internal procedures, audits being conducted or other external sources like new procedures imposed by regulators and the like.
However, one must persevere as a professional and ensure to see the process through. There are real people depending on it.
Certified Distressed Property Expert
(Find one close to you at http://www.CDPE.com)
Keller Williams Realty Miami Beach
Serving Eastern Miami-Dade & Miami Beach, Florida
Seach Florida Properties in YOUR language: http://www.Immobel.com/MiamiRealEstateKing