So, you think you want to become an REO Broker?

Get ‘Em Listed and Roll in the Dough…

It happens every time I teach a class (and I just had an (FIS) class in Charleston last week). Several of my students will get all fired up about becoming a listing agent handling REO’s as the fast track to real estate success. Even though the class is (and is advertised as such) designed to help REALTORS learn how to be successful with options to AVERT foreclosures, someone always attends for the SPECIFIC purpose of meeting me and having me tell them the short cut to becoming a Fannie Mae broker or a representative for some other REO account. Aside from the fact that that is not the purpose of the training, there will always be someone who is persistent in trying to move conversation in that direction.

This article is for you—you know who you are.

Ah-h-h, the Cushy Life of an REO listing agent

I’ve been there, done that, got the T-shirt AND the award. I received the 1st Rising Star Award as Rookie Broker of Year for the United States from Fannie Mae in 2000. They were right on target with their assessment; my star has been rising, (also drifting, getting lost and other mundane contortions) ever since. Oh, but I digress.

The truth is that my Fannie Mae experience was, overall, a really good one. I received excellent training at the Disposition Center in Dallas, and great support from my initial salesperson, Shirley Mastenbrook. I learned how to effectively price property based on a precise analysis of market data and I sold a heck of a lot of Fannie Mae homes. My sales volume and income both increased dramatically. However, my life, as I knew it, completely disappeared. It’s emotionally devastating to process a forceful eviction. To be the person who stands there and officially authorizes someone to be thrown out of their home. Being property manager extraordinaire is an emotionally draining and time-consuming gig.

It’s a New Day

The REO market is booming and in some areas there are more REO’s available than traditional listings. Loss mitigation efforts, including modification and short sale attempts, have slowed the number of completed foreclosures even though the number is still unbelievably high. However, the amount of ‘shadow’ inventory (REO’s being held by guarantors and NOT being placed on the market) is estimated to be a significant amount and must eventually be placed on the open market.

Market dynamics are rapidly evolving. A new mixture of guidelines for disposition changing in response to market conditions and/or government regulations, recommendations or directives and REO owners all serve to make today’s REO broker’s job a very challenging one. The practicalities of good business decisions shaping what will or can be during the time period the REO is under the control of the guarantor or lender is fluid. When you own or manage a few properties you can be almost casual about how you dispose of them. When you own thousands upon thousands, stacked on top of each other, you have to utilize a more systematic, inventive approach in reducing those expenses which revert to you and become vigilant in avoiding any expenses you can. Utilization of a strong contract, with strict adherence to its dictates can mean survival or failure to survive. Whether expenses are moved to listing agents, buyer’s agents or buyers is immaterial; what is important is that anything which can be shifted to someone else, be shifted. The list is growing—now even eviction costs have been added to the list of costs which can be shifted to someone else.

Flies in the Ointment

Nothing messes up a good plan faster than messy details. It should not cause you concern if the dollar amount tied to a detail is a small number, with only two place holders, like $99.00. It gets serious when the numbers are BIG numbers, with 3 or more placeholders, say $475.00 for instance.

Likewise, phrases such as “shall maintain the premises” are not a big deal, unless the premises include a pool or some other high maintenance component. Assuming the responsibility to maintain can keep a person awake at night better than a crying baby. Didn’t they explain that ‘handle utilities’ meant that ‘deposits when required’ would come from your checking account? I suggest you re-check your account balance to be sure you can AFFORD to be an REO listing broker. It’s good business, if you can get it—provided you are sure you understand what you are signing up for.

Re-imbursement is on the Way

**Insignificant detail—To be delivered by deranged carrier pigeon who will be dispatched later this year.

I am not throwing snipes at Fannie Mae. They did an excellent job of processing reimbursements and doing so in a timely fashion based on the criteria they had set for their agents. However, things could be dicey IF you forgot to submit invoices on time. REO sellers are SERIOUS about their deadlines. You miss it; you eat it!!! No equivocating. You agreed and said you understood, this is a business, not a game for newbies who want to play at REO sales. Suck it up, write the check and remember to check due dates more carefully in the future. If you want to depress me, e-mail me and ask about the $15,000.00 I had to shell out after missing a few deadlines—it doesn’t take long for carpet and paint to run into some serious money. BIG numbers, with five place holders—like $15,000.00.

REO’s can be LEASED

Awesome plan! Announced by Freddie Mac in January of ‘09 and Fannie Mae in November of ‘09. This is the deal. Both organizations were (and remain) concerned with the increasingly large inventory of foreclosed properties as well as the public perception that they are not doing all they can to help alleviate the problem. Both have begun lease-back programs so that either the former owner of the property or a tenant placed there by the owner can lease the home back—AFTER foreclosure.

In a nutshell, the Freddie plan is a month-to-month lease, at current market rent. The property will be on the market during that timeframe and the new BUYER assumes responsibility for the eviction process and related costs to get the occupant out of their new home.

The Fannie Mae plan is essentially the same, except that it allows for a one year lease period. If you are the REO broker for either of these guarantors you have the honor of explaining the particulars and the implications to a buyer’s agent. What appears to be a win-win for Fannie or Freddie and the occupant can become a nightmare for the agents involved and a potential purchaser. The magnitude of unintended consequences is enough to make my hair go straight (and I have a very short, curly Afro). I suggest you take a crash course in landlord-tenant law in your state. Additionally, please check to be sure your E&O Insurance premiums are current.

Would I do it again?

The truth is, I might be tempted because of the guaranteed revenue stream. The reality, however, is the same as the prospect of teaching middle school kids: someone has to do it but I am not that hard up yet. Having sold REO’s for 2 ½ years, very successfully, I can see how dramatically the terrain has changed. Today’s REALTOR has a lot more risk, many more potential ‘bosses’, and fewer clear guidelines in an arena which mimics the wild, wild west pretty closely. Training by the companies who select agents is almost non-existent. The entire process is further complicated by the fact that you are stepping into situations like the landlord scenario I mentioned in the paragraph above.

For agents who decide this is still the route you wish to pursue, I’d like to share some thoughts on making an informed decision.

The Five Star Conference, complete with training institute, offers just what you need—but the entire cost for that training will be at your own expense. The timing of the annual event may not coincide with when you want to get started and there are numerous other challenges to concern yourself with as well. Learn how to perform a professional BPO (www.fanniemaebpo.com) so that you are really good at determining property value PRIOR to the listing. Additionally, it might be beneficial for you to read the actual contract used by the guarantor you think you want to represent. I am suggesting that you read both the listing agency contract (which you and your broker will need to sign) and the contract which you will provide to buyers/buyer’s agents. You can learn a lot about the firm you will be working for by studying the documents which will bind you to them.

REO sellers do not all require the same level of service

It is important that you pre-determine what type of REO listing agent you want to be: an agent who only lists properties (such as HUD homes) without an obligation to handle utilities, etc – or does property management to a degree (Fannie Mae or Freddie Mac) or offers an even broader range of services such as rehab, keeping utilities in your name and a full menu of other services. Then only seek or accept listings from an REO seller whose needs mesh with those services which you are willing to perform.

I would caution you to avoid seeing the REO business as something you will just ‘tack on’ to the rest of your business. Most REO sellers are very demanding. Their volume is growing faster than mushrooms and a huge quantity of ‘shadow’ inventory is just waiting to be released. It would be wise to see this as a major part of your business and to make a decision based on whether you were prepared or willing to shift and become primarily an REO seller’s agent if this is the path you chose. If you do well, the volume will definitely follow. If you do poorly because you cannot handle unexpected volume, they will drop you like a hot potato and never speak to you again. They take “failure to perform” very seriously.

I would encourage you to talk to some agents who have listed REO’s within the past 18 months. Sit down with them over dinner (your treat) and ask for an honest analysis of those things which they see as problematic.

Your final question to them should be: “What is the worst thing that could happen?” Consider their answer. If you can live with the worst thing that could happen, then go for it.

Best of luck in the REO world.

Happy to be a “Former Fannie Mae Broker”

Copyright © 2009, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Myth vs. Reality: Short Sale During Bankruptcy

Myth: There is a widespread misconception that since the consumer still owns the house they have the option of putting it on the market anytime they want to, including when they have filed for bankruptcy protection. Sadly, there are some attorneys who will tell the consumer that there is no problem since they are ‘just marketing’ and will get approval from the Trustee for any eventual sale. Too many real estate salespeople are afraid they will miss the opportunity for the listing unless they go ahead and sign a listing contract sooner, rather than later. Everyone is feeling pressured and so a decision is made which is directly contrary to the law and is almost certain to anger the Trustee when they are made aware that a listing is in place. Since Trustees are people, this is not likely to bode well for the debtor.

Reality: All assets are considered frozen from the time the consumer officially files for the bankruptcy. A consumer is prohibited by Federal bankruptcy law from transferring or selling ANY assets until a determination has been made by the Trustee about which assets are to be sold or relinquished to satisfy creditors and which can legally be retained by the debtor. In the meantime, ANY asset advertised as available for sale clearly constitutes an attempt to dispose of that asset in direct violation of the law.

WARNING: If you are a REALTOR, you should be careful to explain to any borrower who is in default and becomes a listing client what is covered above and further, let them know that you will need to remove the listing from the market should they decide it is in their best interest to file for bankruptcy. A licensee should never have a property on the market unless and until the Trustee of the court has given a specific release (in writing) which says that the listing has the approval of that court. Your worst nightmare as a real estate agent could be getting an offer on a property which is, in fact, not available because it has not yet been released by that Trustee. You will have placed the listing client in an impossible position: an inability to close, which would open them up to the possibility of a lawsuit for “failure to perform.” Essentially I am saying this is one of those times when you cannot take matters into your own hands—EVERYONE should wait for the official determination of the Trustee of the Court. Once this has been handed down, provided to all interested parties in writing, then move forward based on the latitude you have been given.

Copyright © 2009, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

From the Desk Of..."Nothing from Nothing"

Nothing from Nothing Leaves Nothing

“And that ain’t nothing, believe you me” is a refrain of a popular song from my youth. Who knew they were talking about real estate commissions? In today’s tight market it behooves you to start with the end in mind. Literally. It would seem obvious that licensees would always do that since they’re self-employed, paid only via commissions. Unfortunately, keen observation signals that far too often REALTORS® focus on the accumulation of listings without focusing on the realistic possibility of a completed closing. They bought into the myth that whoever has the most listings is the winner of the trophy and therefore is most productive.

Something is Wrong With This Picture . . .

Can you imagine an agent who regularly carries an inventory of 25+ listings (average price $125,000) but is seriously struggling. Obviously, the agent has no problem convincing folks he can sell their home. The problem lies in failing at some other very basic issues which are likely to prevent someone from converting a listing into a “closed” transaction. Let’s consider the most likely culprits.

Silly Details

This will surely not be stepping on your toes to mention “silly” reasons why a listing is unlikely to result in a sale.

• The owner filed bankruptcy, two weeks ago
• The spouse never signed the listing contract
• The lender will be “short” and no one mentioned it
• The house is already scheduled for a sheriff’s sale
• The paperwork for a deed-in-lieu was mailed the day you had your listing appointment
• The “summons” was received two (2) days before they called you

Shame on YOU

In today’s market it is not intrusive to conduct a thorough analysis of the reasons why a potential seller chooses to sell at this junction—that just reflects market savvy. Further, it is a disservice to the potential client and to your agency/yourself to list property without addressing the most common reasons why real estate becomes “unavailable” for the completion of the transaction in today’s market. What a shame to have unearthed the proverbial needle in a haystack (a qualified, ready and able buyer) only to discover you don’t have anything to sell. If you are lucky—really lucky—this qualified buyer will be too busy to sue your client for “failure to perform,” with yours truly as a co-conspirator.

Price ‘em RIGHT…from the beginning

The operative word is RIGHT. The correct view is from a buyer’s prospective. Must I tell you I mean for today’s market, not the market THAT WAS—which is no more. If you’re not able to convince a potential seller of the appropriate listing price based on your BPO/CMA and supporting documents, are you a good enough salesperson to convince someone to buy it at the inflated price you listed it for? Think about it.

Is the owner committed?

I’m sorry, I didn’t mean “should the owner be committed” or perhaps, “the owner plans to get committed.” I mean, IS THE OWNER, TODAY committed to selling their home? Well, how can you tell? That’s easy. An owner who is committed to selling has some basic awareness of the market and will be receptive to your education/documentation of current value. They will already be working on getting their home ready for showings and quite willing to set a definite date when those preparations will be complete. A committed seller is not “testing the water.” They have concrete plans for moving. In other words, they’re an active participant in their real estate process, not your reluctant sidekick.

Ready for the debut?

Not you, the house. Too often, in their anxiety to seal the deal and tally another listing, agents list homes which are not only not ready for showings (clutter, minor cosmetic issues which need to be addressed, lack of curb appeal, etc) but whose owner has demonstrated a lack of commitment to making them ready. It’s such a simple practice to ask “How long will it take to get your home ready for showings?” (Notice, I did not say for listing). Then clearly say, “Call me when it is ready for showings. We can then do the paperwork needed for the listing agreement and I will take photos for marketing.” There, wasn’t that simple? Don’t list a home you are ashamed to have viewed. Day One. Dot. Period.

The Four Rules for Listing

The “rules” I encourage you to implement assume your relationship with your client is strong enough to have resolved any issues related to:

1. a. Appropriate market-based pricing
2. b. Acceptable condition
3. c. Provisions for showings
4. d. Possible impact of “undisclosed pertinent information"
5. e. Any “other” current realities

Rule #2—List at no more than 3-5% above the current market (short sale is an exception to this rule)

Rule #3—List only when the home is “camera ready”

Rule #4—List only AFTER the seller has demonstrated they are committed to selling

Closing = Commission Paid

Now for the first and most important rule. The FIRST rule for listing should be: Don’t list anything you don’t REALISTICALLY believe you can close. It was a good rule to live by when I started my real estate career in the early 90’s. This was not a company rule, but my personal standard in order to become a successful REALTOR®. My logic was that if I closed everything I listed, then folks would believe that I was a good REALTOR®. Such a novel idea. But it worked. My fall-thru rate with buyers was less than 5%, almost always because of inspections issues. My expired listings—less than 1%. Time on market—well below the average for the market then. I appreciate that times have changed. Nonetheless, it was an excellent idea then. I encourage you to consider adopting it as your personal mandate today. You’ll accept fewer listings, but if you close 90-95% of what you list, will you be better off in 2009 than you were in 2008? You do the assessment. It’s a business decision. Marketing listings which are not likely to sell is costly.

6% of Nothing is Nothing

One of the prime reasons I teach and write is because I recognized that the strategies which are being used by many agents are counterproductive and therefore, very frustrating. Handling foreclosed properties for Fannie Mae, after some well-meaning agent had tried to sell them—the traditional way—predictably resulting in foreclosure—I decided to teach agents how to better understand the lender/insurer’s position, and how to successfully structure a short sale. It works, IF YOU WORK IT.

Getting to the closing table is the ultimate goal for all real estate professionals. Strategies for posturing yourself, from the inception of the transaction, with the goal of getting to the closing is the cornerstone of the foreclosure related classes taught by HOM. The (FIS) certification is wholly focused on GETTING TO THE CLOSING TABLE.

Want to learn more?

Web: www.HomeOwnershipMatters.com.

Blog: http://www.HomeOnwershipMatters.blogspot.com/

Mildred Wilkins

President of Home Ownership Matters

Author of “Your Real Estate Advisor”

available at: www.DovePublishingHouse.com

Toll-free 1 (866) 507-5105

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more articles by Mildred at HOM's website.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Anticipatory Breach

And the WORD for Today is:

Anticipatory Breach – occurs when one party to a contract informs the other party, before performance is due, that they do not intend to perform as obligated under the contract. Legal action may be brought for anticipatory breach even though the original contract (not yet due for performance) has not been breached. An example: a buyer of real estate informs the seller prior to the scheduled closing date that they have decided not to close. The buyer could be found liable for failure to perform.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Fast Fact: Short Sale Denial

Too many folks have unrealistic expectations concerning a possible short sale. While it is now pretty common knowledge that lots of homes are “upside down” or “under water” most consumers (and too many REALTORS) don’t really understand how a short sale listing works.

FACT: The lender must approve a short sale in order for there to be a “closing”. Frequently the lender DOES NOT approve a short sale attempt and the homeowner eventually loses the home to foreclosure.

REALITY: When an agent lists a home for ‘possible short sale’ that listing is always based upon getting the approval of the lender to accept a shortfall if the new buyer will not pay enough to pay off the mortgage in full and pay all related expenses (commission, taxes, etc). All parties need to understand that it is a possible real estate transaction where the homeowner does not have the final say so about whether or not the offer being presented is or will be acceptable to the bank. There are numerous reasons why a lender may ultimately choose not to approve a possible short sale. Some are connected to the seller but the issue could just as easily be a second lien holder who refuses to budge on the amount needed to lift or satisfy their lien again the home. Or the lender could decide that they are not willing to accept the terms of the offer, as written. The possibilities could fill a rubix cube.


Several precautions are advised for sellers who are upside down:

a. All offers submitted to your agent should first be forwarded to your lender for their consideration. (That’s what “lender approval” means.)
b. Sellers would be ill-advised to sign a purchase agreement to sell the home to Mr./Mrs. Smith PRIOR to receiving, in writing, approval to do so.
c. Sellers should be aware that if you ignore item #b above (because your agent said you had to) and you agree to sell for $159,00 and your bank eventually says that you can close for $$175,000, you have a few thousand dollars to find real quick. (I suggest you get your agent to help you FIND the money since they gave you the advice).

The point is this; if you sign a legally binding contract which the bank later declines; you still signed a contract agreeing to sell your home for a specific amount. You can be sued by the potential buyer for “failure to perform”.

You were warned!

Copyright © 2008, Home Ownership Matters, LLC.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Default

The WORD for Today is:

Default—When a person does not have the ability to make their mortgage payment as scheduled. A default begins on the date when the mortgage payment should have been made. This date should not be confused with the grace period. Once the consumer has gone into default, the lender has the option of accelerating payments, demanding payment in full and/or other action leading to foreclosure. If the lender fails to declare the existence of default, in keeping with the terms of the note and mortgage, they may be deprived of the right to accelerate repayment of the debt.

Default means failing to meet the requirements of an agreement or failing to perform a legal duty. Most often the term is used to indicate that someone has failed to make the required payments on their mortgage. It is important to note that you may also be “in default” due to failure to maintain insurance as required, or failure to keep the collateral in good condition.

“Default”—[as used in the PROMISSORY NOTE] means that a regularly scheduled payment has not been made, in full, on the date it was due to be paid. Many folks miss both the simplicity and the essence of this very short paragraph. Notwithstanding the allowance for a grace period, you are legally in default on a mortgage when the scheduled payment is not in the lender’s possession, in full, on the 1st of the month. While allowances are made for late payments and a grace period exists, there would be no need for “grace’ if you were not already in default.

Default Action Plan—Should include the following, as a minimum. As a consumer you should:

1. Identify the cause of the default. Is the cause temporary or permanent? Can you provide documentation that the reason for the missed payments was either a reduction in your income or an increase in your expenses. In either case, most often you will be required to demonstrate a circumstance which was beyond your control. Voluntarily leaving a job or reducing your hours are considered under your control. Moving from your home to another city, even for a better job opportunity is considered under your control.

2. Design a plan for catching up missed payments. The plan should be feasible based on your current income or realistic expectations of future income (a definite job commitment or date of return from layoff or disability) and include consideration for other expenses which must be carried on at the same time you are resuming payments. Seldom is a 1½ payment realistic and such an arrangement is strictly prohibited on FHA backed loans under Mortgagee Letter 00-05 (See HUD's Website — You will need to click on the letter "00-5" in order to download it).

3. Get in touch with the lender’s loss mitigation shop (also called the work-out department). Your best hope for a good resolution is to speak to the head of this department. Customer service does not typically offer loss mitigation options or work outs that extend past a couple of months of default.

4. Explain the problem. You must be prepared to explain your situation in detail and you should expect to be asked to provide documentation of both the cause of the inability to make payments as well as the detailed information about your current finances as a way to gauge what options might be considered.

5. You should plan to be part of the solution by not only asking for help, but by understanding the different options which are possible, when each might work and under what circumstances. You should see February 24th's entry, where Hardship, Hardship Letters, and Hardship Packages were discussed (here).

6. You should always return phone calls.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: QWR

Qualified Written Request (QWR)—is a very important tool for anyone who is in default. Under RESPA (Real Estate Settlement Procedures Act, codified as Title we USC & 2605 and Regulation X. 24 CFR & (TILA) 15 U.S.C. & 1601, et seq. The statutes provide penalties and fines for non-compliance or failure to answer your questions. You have the right to ask the lender to conduct an examination of your loan, perform an audit, and to provide complete and accurate documentation of everything related to payments you have made and how all payments have been applied. Lender must respond within 60 days, in writing to your request.

Is a wonderful tool to help you if you are in default on your loan. Under Federal regulations a lender must respond to a request from the borrower to give specific details about how the payments, which have been made, have been applied. It is not necessary that the request is in a specific format or that it contains specific language. It must however: 1) be written 2) include the correct name for borrower(s) 3) include account number. It should be sent certified mail and should be sent to any assignees and/or attorneys who have been affiliated with your account. You may simply ask for an accounting of all payments/disbursements, which have ever been made, or you may choose to use the detailed request provided. Or anywhere in between.

Look for more information on this coming soon to the HOM website: www.HomeOwnershipMatters.com.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)