Managing The Shortsale Transaction A Risk Reduction Approach
Matthew Rathbun,
Licensed Broker
ABR, ABRM, AHWD, CDPE, CRB, CSP, e-PRO, GREEN, GRI, SFR, SRS, SRES
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Four Pillars 2010-2012Š
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TheAgentTrainer.com/LBVRAR Four Pillars 2010-2012Š
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Working Without A
Net
•Anti-Trust •Frequent Questions •Breaks •Pace •Engagement •Recording and3 Noise Makers
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http://wittman.house.gov/ Monday, October 15, 12
ARE YOU HAVING PROBLEMS PAYING YOUR MORTGAGE? WHEN YOU SHOP FOR A MORTGAGE,
“DO YOUR HOME WORK ”
Learn How to Avoid Foreclosure and Keep Your Home
For decades, homeownership has benefitted families and communities all over America with greater stability, economic prosperity, safer neighborhoods, better educational opportunities, and even improved health. The recent increase in foreclosures threatens previous gains made in homeownership, as millions of families who had hoped for sustainable homeownership are now struggling to pay their mortgages. This brochure is designed as a quick reference for resources to help families who are at risk of foreclosure, and also provides information on how to avoid the type of loans most likely to lead to trouble. If you are having trouble paying your mortgage for any reason, or expect problems, you should work with your loan servicer (the company that collects payments on your mortgage) or other experts to find a solution now. If you fall behind and don’t take action, the lender will foreclose on your home. If that happens, you may lose your home and all of the money you have already invested in it. The sooner you act, the better the chances you will avoid foreclosure. The Center for Responsible Lending estimates that over 2 million American households with subprime mortgages have lost or will lose their homes by the end of 2009. Their neighbors will suffer financial losses, too, as these foreclosures cause nearby property values to drop by $356 billion. This brochure will help you understand your options and give you tips on how to avoid losing your home—regardless of what kind of mortgage you have.
If you’re in trouble, call an attorney, your local Legal Aid office, or 888.995.HOPE
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https://www.freddiemac.com/corporate/
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http://loanlookup.fanniemae.com
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www.MakingHomesAffordable.gov Monday, October 15, 12
Eligibility Criteria for Home Affordable Refinance Home
• Owner occupied • Is one-‐ to four-‐unit home
Exis)ng mortgage • Owned or backed by Fannie or Freddie • LTV is above 80% but not more than 125% Borrower
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• Current on exis)ng mortgage • Has income to support new mortgage payments
Eligibility Criteria for Home Affordable Modification Home Exis)ng mortgage
Borrower
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• Owner occupied • Is one-‐ to four-‐unit property • Unpaid principal balance ≤ $729,750 for one-‐unit prop. • Originated on/before 1-‐1-‐09 • Payments exceed 31% gross monthly income • Experiences fin. hardship • At risk of imminent default or in default
Home Affordable Modification • Borrowers put on 3-‐mo. trial period w/modified interest level and mortgage payment.
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If borrower is successful in making payments, mortgage servicer executes agreement with new interest rate.
Foreclosure Alternatives
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For borrowers who meet eligibility criteria for Home Affordable ModificaGon, but don’t qualify for modificaGon or complete process
•
DocumentaGon will be standardized and incenGves will be offered to borrowers and servicers to facilitate short sales
Foreclosure Alternatives
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Foreclosure Alternatives •
Incen)ves
• • • •
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$2,200 for servicers for successful short sale or deed-‐in-‐lieu-‐of-‐foreclosure $3,000 for borrowers/ homeowners to help with reloca)on expenses Up to $2,800 toward cost of paying junior lien holders to release liens Loan must have been originated 01/01/2009 or before
Foreclosure Alternatives
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Foreclosure Alternatives • Features
• • • •
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Depending on market, up to one year to market and sell the property No foreclosures may occur during marke)ng period Servicers may not charge fees to borrowers to par)cipate Servicers may not nego)ate lower commission a[er offer has been received
DOD - HAP Program
• • • • • • •
Created by BRAC Governed by Army Corp of Engineers Permanent Orders causing more of 50+ miles Ensure Short Sale is not less than 90% Debt Must compete application Must have Orders or Base Closure Announcement Must be listed with Licensed Agent
http://hap.usace.army.mil Monday, October 15, 12
Statutory Confidentiality 54.1-2131 A 3. Maintain confidentiality of all personal and financial information received from the client during the brokerage relationship and any other information that the client requests during the brokerage relationship be maintained confidential, unless otherwise provided by law or the seller consents in writing to the release of such information;
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Hardship Letters Monday, October 15, 12
Negotiators Monday, October 15, 12
Negotiators
• Who’s Paying and How • Are They Licensed • Track Record • Scope of Service • MARS Disclosure • Communications Plan Monday, October 15, 12
FTC MARS Ruling “IMPORTANT NOTICE: You may stop doing business with us at any time. You may accept or reject the offer of mortgage assistance we obtain from your lender [or servicer]. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us (insert amount or method for calculating the amount) for our services. (Name of company) is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit rating.�
www.ftc.gov/opa/2010/11/mars.shtm Monday, October 15, 12
Short Sale Listing – The Investigation
• Ask Difficult Questions • Are you behind? (Should be asked of
• • •
EVERY client) • Have you called your Lender • May I disclose the pursuance of the short sale? • Can I obtain your pay-off information Commissions Routine Payment / Payoff Investigation Contingent Listing Agreement
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Short Sale – The Investigation
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• •
Get Lender’s Short Sale Packet
• •
Have all Options been explored
•
Have they spoken to an “investor”?
•
Have they signed any documents for “assistance” from anyone other than lender?
Does the Seller meet the Criteria for a Short-Sale Have they called / visited 995Hope.org?
Tasks for agents to track • •
Order Title Work – EARLY Follow up with Seller:
• • • • • • •
Hardship Letter 2 months reoccurring bills Proof of Assets and Income
Obtain Draft HUD / Settlement Sheet Update CMA – Monthly Monthly Phone Call to Lender(s) *maybe more* DOCUMENT, DOCUMENT, DOCUMENT
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Stimulus Act of 2008 • • •
You’re not a CPA, and neither am I
• • •
Applies on to primary residence
Signed December 20, 2007 Excludes income made from real property sale Forgives qualified debt for 2007-2011 Only applies to properties under 2 million (1 million is married filing separately)
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MLS Considerations • Commission Expression • Accurate Status in MLS (CONT/KO?) • Describe the Property, not the status • “Third Party Approval” • Disclosure of Ratified Contracts • Multiple Offers Monday, October 15, 12
Broker Price Opinions
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• • Absorption Rate • Repair Estimates • AVM and BPO Tolerance Market Area Knowledge
Levels
• Outliers • BPO’s kept on file for 3 years
• Requires Agency Agreement Monday, October 15, 12
BPO
Offer to purchase agreements •
You CANNOT negotiate commission in terms of the offer to purchase
•
Buyer Agency Agreement?
• • • • •
Buyer required to pay commission?
Home Inspections AS-IS Third Party Approvals When are you really ratified?
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Potential Additions to Offer to Purchase Recommendation “As a condition of ratification, the seller obligates themselves to disclose to the purchaser if they are pursuing a shortsale, or if they decide during the time period from ratification to closing, to pursue a shortsale.” “Notice of the Seller to the Purchaser shall be in a timely manner, and the Purchaser will have 3 days to decide to void the contract based on the decision to pursue a Shortsale.” “Once ratified, this is the only offer that may be submitted for the third party approval. No other offers maybe ratified.”
Recommendation ONLY: Consult your Broker and legal counsel… Monday, October 15, 12
SHORT SALES Short Sale Buyer Agency Policy
Jennifer and Matthew Rathbun, REALTORS速 5444 Jefferson Davis Highway, Suite 100 Fredericksburg, Virginia 22407 Monday, October 15, 12
Is a Short Sale right for you? Thank you for allowing us to assist you in purchasing your next home. We have created this document to help prepare you for the process, should you decide to purchase a home being sold for less than the Seller owes on their loan(s). This is commonly known as a “Short Sale.” At the time of this writing, about fifty percent of the market in our service area is a distressed property. Reportedly, only seventy percent of those homes being sold as a Short Sale are actually closing. There are a number of reasons why the purchase will not close. Here is a partial list of why the home may not close with the initial buyers: 1. The offered sales price is too low for the Lender to release the mortgage and the Lender decides that the process of foreclosure will yield them a higher net. 2. In rare occasions the Listing Agent hired to assist the Seller is not properly trained or capable to complete the process. 3. The Seller does not qualify for a Short Sale. 4. The Lender simply does not approve Short Sales. 5. The foreclosure process is too far along for the lender to have time to process the Short Sale. A ratified contract from a Buyer, does not stop the existing Foreclosure process. 6. The amount of the Offer is too low. Lender’s being asked to approve deficiency amounts, are only going to forgive a certain percentage of debt. The price on a Short Sale is not a “deal” as one would expect to get in buying an already Foreclosed home. Most asking prices are the lowest the Mortgage company will accept. Additionally the process can take from three to six months (sometimes longer) to be approved by the lender. Only Buyers without a pressing timeframe are ideal for a Short Sale transaction. Monday, October 15, 12
Home Buyers are cautioned to carefully consider if they wish to pursue a Short
Home Buyers are cautioned to carefully consider if they wish to pursue a Short Sale. You, as our client, may elect to have us exclude Short Sales from the list of properties that we recommend to you. It’s important for you to know that in Virginia, a Seller is not required to disclose they are pursuing a Short Sale in their marketing. Typically this information is disclosed upon the Buyer Agent presenting an Offer to Purchase. We have a number of addendum's and clauses that we place in the contracts to try and protect a Buyer. ___________ / ___________ Buyer Client Initials __________________ Date
November 15, 2009 Page 1 of 3
Matthew and Jennifer Rathbun • www.VAHomePlace.com Our Policies As a result of our experiences and knowledge about the current market place, we have developed a list of personal policies that we wish to inform you about. • Upon ratification of a contract, we will not continue to show additional properties to Buyers. A ratified contract is a legally binding agreement and unless a Buyer Client is willing and able to purchase more than one home or property, we will not put that client into jeopardy of legal recourse by defaulting on their contract. • We will not allow the Listing Agent to negotiate our fee for service, with the Third Party Approver. • It is our policy that we do not work with, nor negotiate with non-licensed individuals. The Listing Agent with the fiduciary duties to the Seller will be the person whom we obtain our information from and communicate with. However, we will work with your Lender and/or Attorney if you so desire. • We are ethically and legally unable to communicate with the Seller’s Lender or any other parties, other than their agent. We are at the mercy of the Listing Agent and their Broker when it comes to obtaining status and information in the transaction. Monday, October 15, 12
Your Protections
Your Protections Our intent is to protect your interest to the best of our abilities, for that reason we place the following conditions in each Offer to Purchase Agreement. These conditions are always negotiable, with the Seller. • Each Offer to Purchase will be contingent on the Seller disclosing, no later than the time of ratification, if they intend to pursue a Short Sale. Additionally, if the Seller finds after ratification that they need to ask the Lender for a Short Sale, they will be required to disclose that issue to us and give you up to three days to decide if you’d like to proceed. • According to the Virginia Association of REALTORS® Legal Counsel, Sellers are able to submit several contracts to the lender, for third party approval. We place verbiage in our offers that makes ratification contingent on the Seller ONLY submitting our contract to the Lender and no others. • We will give the Seller up to 30 days to present a Lender’s Approval of the Short Sale, or give you the right to void the contract. ___________ / ___________ Buyer Client Initials
November 15, 2009 Page 2 of 3
Matthew and Jennifer Rathbun • www.VAHomePlace.com
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__________________ Date
• The Offer to Purchase will have provisions holding that all contingencies (such as finance, home inspection, applications dates, etc...) will begin only after the Seller produces an approval from all lien holders, in writing, that the Short Sale is approved to close. Occasionally the Lenders will give a Short Sale approval, that is conditional on closing in a short period of time. You need to be aware that in order to meet those deadlines, it may be necessary to waive Buyer protections, such as home inspections, etc... • Occasionally the Seller will request permission to leave the home “active” in MLS to try and solicit other buyers. This is a violation of the MLS rules, REALTOR® Code of Ethics and Virginia Law as homes may not be listed “For Sale” if they are not, and we encourage you to not agree to these terms. • We will ask that all contingencies, including deposit of the escrow not begin until after the Lender has approved the deficiency judgement.
Considerations In this troublesome time for real estate, there remains opportunities for Buyers to get wonderful homes and premier properties, but the trade off is an unstable process. We, as your agents, can and will do our best to protect your interest and keep you informed, but we can offer no promises for a smooth or successful Short Sale closing. We will contact the Listing Agents and try to obtain as much information about the process from beginning to end. We will convey that information promptly. This is a very uncertain process and we encourage Buyers to seek out traditional listings or REO (Real Estate Owned, commonly referred to as Foreclosed Properties) Listings. If you wish to not pursue homes that are known to be Short Sales, please indicate this below. Optional:
I/We wish for our Agent(s) to exclude those listings known to be Short Sales from the properties presented. We understand that we may decide to pursue a Short Sale, and if we do so the existing Agency Relationship is not dissolved.
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_______________________________ _______________________________ Signature of Buyer(s)
Real Life •
Broker sued Lender for ruining a transaction, by changing the approval at the last minute... Broker prevailed!
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Real Life •
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Brokers sued for non-disclosure, etc after lender denies Short Sale. Court said that Broker had duty to disclose debt that “far exceeded” the debt in the contract.
Forms - What They Really Say
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VAR - Short Sale Addendum to Residential Contract
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VAR - Short Sale Addendum to Residential Contract
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VAR - Short Sale Addendum to Residential Contract
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VAR - Short Sale Addendum to Residential Contract
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Hold Harmless - Example Only
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Hold Harmless - Example Only
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Required Docs - Example Only
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Authorization To Disclose - Example Only
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Authorization to Negotiate - Example Only
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Create A FAQ
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Say It Only Once...
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Broker Policies To Consider
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Brokerage Policy Considerations • Only properly trained agents may take listings that they know to
be Shortsale. Setup a written policy on who may take them and what the steps are.
• All Shortsale listing agreements must be subject to broker’s final approval before marketing.
• All Shortsale listings must state that agent has four days of discovery before proceeding to market and are contingent.
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Brokerage Policy Considerations
• Seller must (in writing) give permission to disclose the pursuit of a short sale in MLS marketing. This is a waiving of their otherwise protected confidentiality.
• Buyer Agents making offers on Shortsale listings (if
known) should have company “disclosure” warning buyer of potential issues with the pursuit of a Shortsale listing.
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Brokerage Policy Considerations • Broker should have specific training
on how Listing and Buyer agents should handle negotiations with the Lender. They are not parties to the listing agreement.
• Company policy should address how
agents can handle commission disputes with other companies. (i.e. Only Brokers can negotiation or alter commission agreements)
• Commissions cannot be negotiated in the offer to purchase
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Brokerage Hold Harmless Agreements
• • • • • • •
Agent will not provide tax or legal advice Refer to Attorney for guidance Acknowledge that no guarantees are being made Held Harmless from all damages Lender has right to collect monies after closing Recourse or non-Recourse State? Brokerage does not guarantee that a foreclosure will not occur
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matthew@realtor.com Facebook.com/mattrathbun @mattrathbun YouTube.com/MattRathbun1 Monday, October 15, 12