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RE78R13 Short Sales and Client Care with Kate Lanagan MacGregor
RE78R13Short Sales and Client Care
with Kate Lanagan MacGregor
Many Borrowers are underwaterAlthough U.S. homeowners gained an average of nearly $13,000 in equity between 2016 and 2017, the housing market is still being impacted by the 2008 housing crisis and more recently, COVID-19. Today, 2.8 million borrowers owe more than their homes are worth. This number is down from 3.6 million homeowners experiencing negative equity, as measured in the second quarter of 2016.1 In some states with long foreclosure timelines, we still see properties with loans from 2008–2010 still in the foreclosure process. Many homeowners hang on in distress for years, struggling with jobs, health, and increasing age until the stress that began in 2008 finally forces a sale.
Core Logic. “CoreLogic Reports 2.8 Million Residential Properties with a Mortgage Still Underwater.” Core Logic, https://investor.corelogic.com/pressreleases/corelogic-reports-28-million-residential-prop- erties-mortgage-still-negative-equity
REBAC SFR Designation-Short Sales & Foreclosure Resource Certification
Debt!~ What’s Different?
Many people are still struggling to pay the debts they accumulated in the crisis. Bad credit from 2008 made recovery slower for those who were severely affected. Despite a recovery and expansion of housing markets around the country, many borrowers are still underwater.
The impact of the COVID-19 pandemic is yet to be seen, but unlike the 2008 housing crisis, banks are taking unprecedented measures to ensure homeowners can stay in their homes.
This includes measures like deferment of mortgage payments for a period of time, waiving late fees on loan products or even lowering interest rates.
Fortunately, and likely because of the housing crisis, the housing market is considerably more stable which should prevent an entire upheaval of the market.
Your seller comes
to you...They “need” to make a certain amount
on their home...
You want to help them!
Quick Peek at Public Records...
Check out Public Records to glimpse
❏ Sale Price❏ Mortgage Amt❏ Second Mortgage❏ Dates
On to Online Registry of Deeds
❏ Mortgage
On to Online Registry of Deeds
❏ Liens
On to Online Registry of Deeds
❏ Judgements
On to Online Registry of Deeds
❏ Servicemen’s Notice
MLSPIN/RPR
❏ “Comps” in area
MLSPIN/RPR
❏ Distressed homes
MLSPIN/RPR
❏ Health of market
Is there hope for your client?Are they a candidate for short sale?
What is a “Short Sale?”The sale of real estate where the proceeds from the sale of the property provide insufficient funds to pay the existing liens and expenses related to the sale of the property.
By definition, a Short Sale is a situation where the Seller owes more on the house than they can sell it for in today’s market.
What is a “Short Sale?”
Underwater?
❏ Sometimes referred to as "Underwater Loans"
Underwater?
❏ Three Party transaction (Seller, Buyer and Mortgagee-lender)
❏ Educating our clients & customers to the market
The Realtors® Role
❏ Educating our clients & customers to their options
The Realtors® Role
❏ Helping the sellers through a difficult emotional time.
The Realtors® Role
❏ Being a resource in our communities
The Realtors® Role
❏ Assisting Buyers & Sellers through the process!
The Realtors® Role
RECOGNIZING THE SHORT SALE CANDIDATE
❏ Sellers will not always be truthful or aware!
RECOGNIZING THE SHORT SALE CANDIDATE
❏ Is there an extreme sense of urgency to sell?
Establishment of hardship
❏ Divorce, job loss, illness
Establishment of hardship
❏ Is there more than 1 mortgage or Home Equity Line of Credit?
Qualifying the seller
❏ Why & Where are they moving?
Qualifying the seller
❏ What do they owe?
Qualifying the seller
❏ Do a Net Sheet with the CMA
Why Do A “Short Sale”?
❏ Avoid Foreclosure❏ Control the circumstances
Why Do A “Short Sale”?
❏ Reduce risk of negative impact on Seller's credit rating
Help sellers Rebound
❏ Sellers regain control of their financial life
Help sellers Rebound
❏ Sellers stop depleting other financial assets
❏ Minimize damage to credit report
Why Do A “Short Sale”?
❏ Manage financial life
Why Do A “Short Sale”?
Short Sale vs.
Foreclosure“Bruised credit vs Ruined credit”?
The estimate number of years impacts credit varies.
Out of the hole!
❏ Stop depleting assets
Out of the hole!
❏ Gain the ability to start over!
Qualification
❏ Are they in default? If yes, how far behind?
Qualification
❏ Is there more than 1 mortgage?
Qualification
❏ Do they have a Home Equity loan?
❏ Do they have PMI on their loan?
Qualification
❏ Are they motivated and realistic?
Qualification
They Really have to be broke!
❏ Are they facing financial hardship?
They Really have to be broke!
❏ Do they have other assets?
Hardship Letter
They Really have to be broke!
❏ How cooperative will they be?❏ Sellers must be vested in the process!
Hardship Letter to include
❏ How you got into your present situation—
Hardship Letter to include
❏ What has changed in your life and in the residential real estate market since your original financing?
❏ What you have done to try to get out this situation
Hardship Letter to include
❏ How nothing you can do can improve the situation
Advice for the seller
❏ Remember, the lender doesn't care about you or protecting your credit score.
Advice for the seller
❏ Your hardship letter must show why granting your request is the best way, the only way, it can do that.
❏ Play on the heartstrings in a truthful, targeted manner.
Advice for the seller
❏ If you don't feel sorry for yourself by the time you have finished it, the lender certainly won't.
Advice for the seller
PREPARING THE SELLER
❏ Have they spoken to an Attorney and/or Accountant
PREPARING THE SELLER
❏ Explain Alternatives, Options, Resources
Have Authorization
❏ What are the benefits of the Short Sale Option?
Have Authorization
❏ Give it in writing and have it signed!
We Are Not Attorneys or Accountants !
Do not give Legal or Financial Advice!
Seller Options
❏ Payoff amount required by Lender unacceptable to Seller-sale rejected
Bankruptcy Option
❏ Seller may consider Bankruptcy after "short sale" closing
HOPE
❏ HOPE - ❏ Making Home Affordable Program
ACRONYMS tips!
❏ HAMP ❏ Home Affordable Modification
Program
ACRONYMS tips!
❏ HAFA ❏ Home Affordable Foreclosure
Alternative
ACRONYMS tips!
❏ HARP ❏ Home Affordable Refinance Program
ACRONYMS tips!
❏ PMI ❏ Private Mortgage Insurance
HOME OWNER OPTIONS
❏ Forbearance-Forbearance is when your mortgage servicer or lender allows you to temporarily pay your mortgage at a lower payment or pause paying your mortgage. You will have to pay the payment reduction or the paused payments back later. ... Forbearance does not erase the amount you owe on your mortgage.
HOME OWNER OPTIONS
❏ Loan Modification (HAMP)
HOME OWNER OPTIONS
❏ Reinstatement-❏ If you are behind on your mortgage, you do not
necessarily have to lose the home to foreclosure. ❏ If you are able to get back on track, contact your lender
to discuss reinstating the loan. ❏ The reinstatement period is the amount of time you
have to pay the delinquent balance plus any fees or costs.
HOME OWNER OPTIONS
❏ Refinance (HARP)
HOME OWNER OPTIONS
❏ Bankruptcy - Chapter 13❏ A chapter 13 bankruptcy is also called a wage earner's
plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years
Forbearance
❏ A special agreement between the lender and the borrower to delay a foreclosure.
Forbearance
❏ When mortgage borrowers are unable to meet their repayment terms, lenders may opt to foreclose.
ReinstatementReinstatement refers to a property owner or junior lienholder’s right to reinstate a mortgage and cure any default by paying the delinquent amounts due on the note and trust deed, plus foreclosure charges.
Bankruptcy
❏ In a Chapter 7 bankruptcy, you can only keep real estate if it falls under a state exemption.
Bankruptcy
❏ The homestead exemption allows you to keep real estate that you occupy, as long as the value of the home is less than the exemption amount.
❏ Deed in Lieu (DIL)
Seller Options
❏ Non Profit Programs❏ HOPE❏ Local Non Profits - CHAPA
❏ Citizens' Housing & Planning Association
❏ Federal Debt Relief Act
Seller Options
PREPARING THE SELLER FOR SHORT SALE
❏ Advise there is no guarantee
What Happens to Deficiency?
❏ Non secured loan
What Happens to Deficiency?
❏ Federal Debt Relief
What Happens to Deficiency?
❏ IRS
2020- NOLONAR- Mortgage Debt Cancellation Relief
CoVid Indemnification
2 Foreclosure options
❏ Deed in Lieu of Foreclosure❏ Auction Foreclosure Sale
Negotiating the “short sale” Pay-offs
❏ Sellers must give written authorization to contact the Sellers Mortgagee lender(s)
bank contact
❏ Contact Lien Holder Loss Mitigation Departments to start the process
bank contact
❏ Identify Lender's requirements for short pay-offs and approvals
packages
❏ Prepare Financial and Hardship Packages for Seller of the property
packages
❏ Negotiate between multiple lien holders for pay off percentages
SHORT SALE PACKAGE/SELLERS PORTION
❏ Authorization to release information or POA
SHORT SALE PACKAGE/SELLERS PORTION
❏ All contact information for lenders
SHORT SALE PACKAGE/SELLERS PORTION
❏ Who owns the loan?
SHORT SALE PACKAGE/SELLERS PORTION
❏ Hardship Letter
SHORT SALE PACKAGE/SELLERS PORTION
❏ Financial Statement
❏ Supporting information (include bank statements)
SHORT SALE PACKAGE/SELLERS PORTION
❏ Most recent pay stubs
SHORT SALE PACKAGE/SELLERS PORTION
❏ 2 years tax returns
SHORT SALE PACKAGE/SELLERS PORTION
LISTING A SHORT SALE
❏ Strategy for Pricing
LISTING A SHORT SALE
❏ Prepare a property condition report
LISTING A SHORT SALE
❏ Offer of Compensation in MLS
LISTING A SHORT SALE
❏ Disclosure of Short Sale
LISTING A SHORT SALE
❏ Having a Short Sale Addendum❏ Disclosure❏ Options❏ Authorizations❏ Duties
Moving Money
❏ Mortgagee (Lender) may award funds to Seller for moving expenses
PRESENTING AN OFFER and P&S
❏ Have a complete package❏ Offer/ P&S, proof of funds or pre
approval, copy of Earnest Money, Short sale addendum
❏ Addendums: Title 5, Lead, Smoke/CO Cert
PRESENTING AN OFFER and P&S
❏ Updated CMA with condition report or repairs
PRESENTING AN OFFER and P&S
❏ Net Sheet❏ (don’t forget MLC)
PRESENTING AN OFFER and P&S
❏ Sellers paperwork as previously described
PRESENTING AN OFFER and P&S
Challenges in Negotiating “Short Sales”
❏ Marketing to state that offers are subject to 3rd party approval
Brokerage Commissions is by negotiation
❏ Fannie Mae loans cannot be compromised by mortgagee (lender) unless exceeds 6%
Part of Process
❏ Role of Attorney
Part of Process
❏ Role of Attorney General's Office in the negotiating process, HomeCorps
Rejected!
❏ Reasons why "Short Sale" may be rejected
Rejected!
❏ Offer is too low / Offer too low based on buyer's financials
❏ Mortgage Investor is not willing to participate.
Rejected!
❏ The BPO came in Higher!
Rejected!
Broker’s Price Opinion (BPO)
❏ Used to determine value of property
Broker’s Price Opinion (BPO)
❏ If higher than offer Lender will reject the "Short Sale"
Broker’s Price Opinion (BPO)
❏ Short sale comparables vs. current market sale comparables
not related to loan
❏ Loss Mitigation/short sale package is incomplete
not related to loan
❏ Hidden assets of the Seller
massachusetts is…. special!❏ Out of State Lender's/Mortgagor's
staff may not be familiar with Massachusetts' rules and regulations
BPOS
❏ Types of Broker Price Opinion (BPO)
BPOS
❏ Drive by-exterior of property-estimated value of property
BPO vs CMA
❏ Interior BPO- interior condition plus estimated repairs for any existing damage
BPO vs CMA
❏ BPO vs. Comparative Market Analysis (CMA)
Buyer Risk
❏ Buyer must be flexible (delay can affect Buyers financing, rates, etc.)
Buyer Risk
❏ Denial of "Short Sale"
Review of Process
❏ 3rd Party Negotiator
Review of Process
❏ Getting to the Authority
Review of Process
❏ Outline the story every time.
Review of Process
❏ The BPO Agent
Review of Process
❏ Keep an eye on the foreclosure sale.
OFFERS & P&S
❏ Learn the specific lenders
requirements & guidelines – typically found on their website.
Numerous “loose ends”
❏ Communicate responses quickly.
Numerous “loose ends”
❏ They may counter an offer.❏ The Deficiency!❏ Get Approval in writing!
Short Sale Variables
❏ "Offer" and "Purchase and Sale Agreement" must clearly state property is a "Short Sale" property and requires Lender Approval
Hurry Up and Wait!
❏ Time (realistic date for acceptance of Offer and Closing Date)
determine market value
❏ Shorten comparable period
determine market value
❏ Consider Foreclosure comps
determine market value
❏ Review pending Sales
Lender Specifications
❏ Lender, Freddie or Fannie Mae may have regulations that may prevent the sale
Tax Issues
❏ Deficiency Statement signed by Seller
Tax Issues
❏ 1099 Form forgiveness of debt is taxable income
Tax Issues
❏ C.P.A. advice recommended to Seller
❏ Lender has sole discretion whether to cancel debt or take action to collect difference between amount owed and amount collected
WHAT IF SHORT SALE FAILS
❏ Foreclosure will be running parallel
WHAT IF SHORT SALE FAILS
❏ Paying the past due amount
WHAT IF SHORT SALE FAILS
❏ Ability to request a modification
Other Options
❏ Deed in Lieu may still be an option
❏ Homeowner must deal with bank on their own
❏ Foreclosure Auction is the next step!
buyer’s agent guide to a short sale
Buyers Agent should:
❏ Set Realistic Expectations upfront!
Buyers Agent should:
❏ Give Buyers the facts about Short Sale
Buyers Agent should:
❏ No Guarantee
Buyers Agent should:
❏ Constructing Offers
“A Good Deal?” Really?❏ Time Issues: for response to their
offer, for closing dates.
“A Good Deal?” Really?❏ Home Inspection, Financing,
Appraisal
“A Good Deal?” Really?❏ What about market changes?
CONCERNS & CHALLENGES
❏ Where will the Seller go?
CONCERNS & CHALLENGES
❏ What about commission?
CONCERNS & CHALLENGES
❏ Don’t forget smoke certs, fuel, etc…
Wait. Hurry Up.
❏ Closing on time once approved
Wait. Hurry Up.
❏ Will the Buyer wait?
Wait. Hurry Up.
❏ Will lender cooperate?
In the Meantime-
❏ More than 1 offer
In the Meantime-
❏ What happens when “subject to 3rd party approval”
In the Meantime-
❏ Seller accepted
In the Meantime-
❏ Better offer comes
Seller Prerogative
❏ How should offers be presented
Seller Prerogative
❏ Threat of Bankruptcy
Seller Prerogative
❏ WISP & the Paperwork
different systems
❏ Bank Of America❏ Equator system first of its kind?
different systems
❏ Most large lenders have policies & procedures. Check their websites.
different systems
❏ Non Profit Foreclosure prevention centers.
RESOURCES
❏ Know Your Options❏ HomePath- Fannie Mae❏ HomeSteps- Freddie Mac❏ HUD-FHA
Resources-MHA
Home Affordable Modification ManualMaking Home Affordable HandbookFannie Mae Requirements
REBAC~ Short Sales Foreclosure Resource Certification
Recent Articles-2019
The Balance- Before Buying a Short Sale HomeThe Balance- Things to Know Before Buying A Short Sale HomeThe Balance- The Complete Short Sale Process From Beginning to End
