REO Assumptions and Assertions

REO Assumptions and Assertions

Biggest Assumption: They just need to dump it

Translation: They’ll take any kind of crazy offer

Assertion: N-O-T YET

As a former Fannie Mae Broker–Specialist, I can provide insight into the real world of buying and selling bank-owned properties. First, forget most of what you think you know about such transactions—you’re probably way off target.

The Devil’s in the Details . . .

If you’re assuming they just need to dump it, you are half way right. They do, they really do, but not at any price. The most common misconception is that the holder of REO property will accept any offer without consideration for the value of the collateral. I suspect you’ve been watching too much late night television. While it is true that the increased volume of foreclosed properties means a substantial increase in REO inventory, the basic business principles which govern liquidation are not changing as rapidly as they need to (or as you had hoped they would.)

Harsh New Reality

It is a harsh new reality that today’s market is being flooded with REO’s. Thousands more will be added in the months ahead as a result of the backlog which has been created because of political posturing. As a consequence, both federal agencies (HUD, VA, Fannie and Freddie) and private mortgage insurance carriers will need to adjust their guidelines during the upcoming months. Unfortunately, as a practical matter, in the meantime, they and loan servicers must operate within the guidelines of existing regulations and existing contractual stipulations until they are amended. They will be relaxed—necessity will dictate that they must be. The consequence will be a ‘let’s make a deal free-for-all.’ Good for agents and buyers—not so good for price stabilization. But it has to happen and the sooner we get to it the better.

They Don’t Know Its Value

You’re right on target with that assertion. The “local market reality” is a piece of data which is hard for the servicer to grasp when they handle properties around the country from a centralized location. The truth is, their usual resources are less than reliable. They must rely on:

• Their appraisal, and we know how likely that is to be inflated
• A $50-$75 BPO—okay, does anyone really think you’re getting an accurate evaluation with a product produced in a BPO mill? Do you really think that they are trying to determine value with that document? (They are NOT. They are fulfilling a servicing requirement to have a BPO performed.)
• Their gut instinct
• The loan amount shown in their computer—but since when has that been connected to the ACTUAL value of the property?

Hence, the market will dictate and that process takes time. If the property is ‘rejected by the market’ for an extended period of time then it is declining in both actual and perceived value. It’s in everyone’s best interest to determine fairly accurately, from the onset, what is today’s market value. Consequently, the servicer needs a current, as-is appraisal. While many appraisers were rewarded for inflating values during the boom years, they are now stuck with the unpleasant task of trying to justify vast differences between former and current value. Market correction is not enough of an explanation but the recently sold comps don’t lie. It’s worth what someone will pay for it—today—not last year.

The Law of Supply and Demand

In time (I think within the next three to four months) the inventory will be so high that the valuations will plummet and get in line with what a ready and able buyer is willing to pay a reluctant REO owner. During the boom years hundreds of thousands of houses were built across the country without any clear need based on population growth. Speculation in real estate was HOT. The jobs created, the loans generated, and false illusion of prosperity made for wonderful headlines.

I was nearly thrown out of a Foreclosure Task Force meeting in Indiana in 2006 when I dared to mention the need for a moratorium on new construction since the city had already built more than 30,000 new homes in 5 years for only 10,000 new residents. I mentioned a college business class on supply and demand. I visited Denver in 2006 and thought they were building homes for the entire United States to move there. Then I moved to Florida and quickly observed that enough new houses were being built there for the few folks who didn’t want to move to Denver or Indianapolis. Shall I mention Atlanta, Las Vegas and twenty other cities which issued building permits without checking to see where the buyers were coming from. We are paying the piper (and we will be paying for the next ten years) for allowing an excessive amount of housing to be built. We created an economic situation which will dictate FEWER aggregate occupied households as people move to sharing homes in order to survive the financial crisis created, in part, by the ‘creative financing’ used to sell the new housing stock.

In time, the newly created rental housing market (previous homeowners, now renting again) will absorb much of the current excess single family housing but we will have changed the dynamics of communities across the countries from single family, owner-occupant to rental dwellings, perhaps housing more than one family. Investors are the most likely purchasers for the glut of foreclosed homes which will hit the market during the next two years. As businessmen and women, they will make decisions based on totally different criteria than buyers who would be owner-occupants. Financial institutions will have no choice except to reconsider their options when holding costs, fines from municipalities and other constraints dictate they do something to stop the bleeding. Excess has its payback. The law of supply and demand will not be ignored; pretending it does not exist is a sure fire way to pay the piper.

Now About that Insurance and Title Work

If you do not know the difference between a ‘marketable title’ and a ‘clear title’ this would be an excellent thing for you to research if you are planning to purchase an REO property. Suffice it to say that the REO you are purchasing can have gaps in the title coverage which leave room for undisclosed liens to surface after the closing and bite the new owner in the proverbial behind. Since you will have signed numerous documents which stated that you understood that you had no recourse after closing: you will not be surprised when I tell you: YOU HAVE NO RECOURSE AFTER CLOSING.

Watch for an upcoming webinar on the HOM website: “Buying REO is Risky Business”. You might want to put that on your schedule.

Copyright © 2008, 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 feedback, comments, and especially your questions. Don't be shy!)

WORD: Assessed Value

And the WORD for Today Is...

Assessed Value – is the value placed on a property by the tax assessor for the purpose of collecting property taxes. Due to the sheer volume of assessments which must be conducted, it is not uncommon to find mistakes in either the calculations or in the property description. Likewise, there may not be adjustments for exemptions the property owner is entitled to receive. It is a good practice to always carefully review the entire assessment, beginning with the description of your property. The assessor’s office may not be pleased to have you do so, but there is a process to challenge the assessment if you believe it is in error. Things to verify: accurate square footage, components of the house (number of bedrooms, bath, garage bays, etc), type and quantity of exterior material (home is all vinyl but shows assessment for brick front property). If you believe an error has been made assume it was an honest mistake, remain polite but work aggressively to get it corrected.

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.)

From the Desk of..."REALTOR at the Crossroads"

You’re a

REALTOR at the Crossroads

This is not a time for ‘dabbling’ in real estate. If you’re not a BIG DOG or prepared to become one, you really must stay on the porch. If you’re a little ‘soft around the edges’ and cry at scary movies, now would be a good time to non-renew your license.

Challenging Times

We are hard pressed to remember a time which has been harder for the housing market, and consequently, for real estate professionals in the past 25-30 years. If you are still trying to decide whether or not to renew your license, then read on. I have been warning that we were headed for just this situation since 2002. Mostly, I have been laughed at for my trouble or asked “Are you serious?” I was serious and correct. Everybody else is adequately covering the challenges now that we are actually in the midst of them. I have chosen always to understand my environment and figure a way to become at peace with it. So, let’s fast forward to the best of times.

Best of Times

This is the best of times to seize the opportunities being presented by today’s challenging real estate market. If you have lived a few years past, say, 30, you know that inherent in all difficulties lies the potential for new opportunities. This really is the best of times to take stock of both your personal and professional lives and decide—AGAIN—what you want to become when you grow up. While traditional real estate sales, for the average REALTOR, have become difficult at best, YOU are not average. You decided to read this article hoping to find insight and perhaps direction since you recognize you are at a crossroads.

Today’s Reality

No matter what city or state you happen to call home the challenges facing real estate professionals today are remarkably similar. There are more properties available for sale, a somewhat (or perhaps extreme) smaller pool of traditional buyers, tighter guidelines for financing, more REOS and a multiplicity of factors pushing property values down. Did I describe your market pretty accurately? There are exceptions, of course, but your market is likely described above. Today’s reality. Your success depends very little on what is going on in your market. Instead, your success is tied to how you respond to the market and whether or not you position yourself to be one of the agents who not only survives---but thrives—during this turbulent market. A concentrated, committed, full-time effort will almost guarantee success.

Specialization in Expanding Fields

The successful real estate professional two years from now will be able to look back and tell you with clarity exactly when they stood at the crossroads and made a choice which took their career to a new level. Specialization in one of those areas which are expanding because of the downturn will allow you to become one of those future success stories.

What Might a Career Shift Look Like?

• REO sales person—representing lenders/servicers by selling bank owned property. ( I am a former Fannie-Mae Broker specialist.) Can you imagine the volume of listings I would have now if I still represented them?
• Trash-out Specialist—handling all the details needed to trash-out and prep homes which have been foreclosed
• Locksmith—again—working for lenders to re-key when properties are vacated prior to foreclosure and again after the sheriff’s sale for placement on the open market as an REO
• Reverse Mortgage Specialist—working for a company which sells reverse mortgages to seniors who have equity in their homes as a way to avoid foreclosure/enhance their lives
• Foreclosure Intervention Specialist—(FIS)–starting a business as a consultant to offer foreclosure intervention counseling/representation, especially in upper end markets/areas
• Investor—in rental property you expect to hold for the duration of this down economy
• Property Manager—for single or multi-family—WARNING—not a simple as saying you can.
• Short Sale Specialist—again-not as simple as saying you can. Agents who have learned to be proficient at the strategies for successfully completing a short sale will be in demand. You would have more business than you could handle—IF YOU KNEW the secrets to successful short sales.
• Default Counselor—not the same as a foreclosure intervention specialist at all. You would most likely work for a non-profit agency doing counseling or you might start your own firm
• Real Estate Attorney–who decides to represent consumers who are struggling with their mortgage payments. You would also receive referrals from REALTORS, default counselors, and foreclosure intervention specialist when legal help was needed—WHICH IS CONTINUALLY.
• Lawn Care Company—not very glamorous---but definitely a business with a strong demand. As more foreclosures occur lenders are increasingly under the gun to keep properties which they own maintained. They’d rather pay you than the city.
• Show Home Franchisee Owner—finding qualified tenants for upper end properties while they remain listed. It’s a different class of property management. Great income—thriving in some markets.
• Property Valuation—using professional BPO forms ( such as the Fannie Mae BPO long form) and skills which include making adjustments for individual components of the property. Your most likely employer: lenders and servicers. Additionally, I believe consumers would be willing to pay for fairly accurate assessment of their property’s current resale value in order to help with their difficult choices in this climate. (I’m sorry guys, the traditional BPO or CMA is not thorough enough for today’s market.)

Dare to Re-Define Yourself

Trust me, time is on your side. The current wave will be rolling for the next 5-7 years or more. Get ready for the next ‘stage’ of your real estate career. Since I entered real estate in 1993, I have gone from buyer’s agent for entry level homes to listing agent to Fannie Mae Broker-Specialist to becoming a national trainer on foreclosure issues. Life is about ‘stages.’ Get un-stuck, buckle up and hang on!!.

You’re a REALTOR at a crossroads; which path meshes with your skills and interests?

Observations From the Desk of Mildred Wilkins,
President and Founder of Home Ownership Matters, LLC.

© Copyright 2008, Home Ownership Matters, LLC. All rights reserved.
(FIS) is a registered trademark of 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: Ad Valorem

And the WORD for Today is:

Ad valorem – means “according to value”. Ad valorem refers to a method of taxation which uses the value of the property being taxed to determine the correct amount of the tax bill. Taxes can be calculated in primarily two ways:

a. “Ad valorem”
b. “Specific”

For example, a tax bill calculated at $7.00 for each $1,000.00 of the home’s value would be ad valorem. A tax bill that set an amount for each property no matter what its respective value would be a “specific” tax method. While most consumers believe their taxes are excessive, the majority agree that the ad valorem method is fair when the method of arriving at the valuation amount is fairly applied.

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.)

Q&A: Strategic Default

Strategic Default

Q. My house is worth considerably less than what my mortgage payoff is currently. My husband and I are still working and can manage the payment but it just does not make sense to keep making a payment every month when we are so upside down. I have heard the phrase ‘strategic default’ which seems to mean the people just decided to walk away and leave the house. Is this something we should consider?

A. The issue of strategic default has not been addressed in this blog at all until it was mentioned recently in the jingle mail blog. First, let’s get some clarity about what is being called a strategic default. As the phrase is being used currently it most often refers to someone who:

1. Has the financial means to keep making the mortgage payment
2. Has determined that the balance is significantly higher than the value of the property to the point that no turnaround is likely in the foreseeable future
3. Has been unsuccessful in getting the lender to renegotiate for a reduced principal balance
4. Has consciously made the decision to forgo additional mortgage payments and let the chips fall where they may (including the most likely outcome being foreclosure)

Now that I have provided clarity on when it might be considered, I will answer that question you asked, which is, should you consider it. My answer is that ONLY you can decide if you are willing to accept the consequences which are likely to occur as a result of a strategic default. I would not presume to try to move you one way nor the other. I will give you a glimpse of possible consequences to help you in the decision.

Possible consequences include:

1. Foreclosure—very likely—almost a given
2. Deficiency judgment—depends on your state foreclosure laws, highly likely where permitted
3. Additional expenses incurred due to vandalism to the property after you abandon and before the lender/guarantor puts the property into their name. Scary thought if they never do. (or if it is six months or a year from now and the value of the home has continued to decrease.)
4. Lender or Guarantor may be successful in going after assets you have to satisfy the deficiency mentioned above
5. Negative impact on the possibility of a future home purchase (kind of like a separation, you left but you can’t marry anybody else until you get the divorce)
6. Possible liability should someone be injured or killed on the property while you are still the title holder and the party responsible for insurance (even though you have not paid it)
7. Possible tax liability for the shortage, once that has been determined
8. I could mention a few more but you get the picture

While there is the compulsion to walk away from this really, really difficult situation you need to weigh the pros and cons carefully...then ask yourself...what is the worst thing that can happen?

Can you live with that, whatever that is? If you can, then move forward knowing that you considered the options and made an informed decision. Best of luck, whatever you decide.

"Remember, knowledge can be empowering!"

Mildred

Short Sale Buyer: 10 Critical Areas of Concern

Short Sale BUYER

Ten (10) Critical Areas of Concern

If you are thinking of buying a home in today’s market, there is a pretty good chance that you will find a home you like which is upside down (seller owes more than the house is worth in today’s market and the sale will require that the lender approve a short sale). Buying a ‘short sale’ is not necessarily a BAD thing but it is definitely a DIFFERENT thing than a regular purchase and so you need to ask yourself some important questions before you embark on this journey. I am going to assume that if you know the right questions to ask that you will be diligent about getting some good answers before you move forward.

Here are areas where you need to do your homework:

1. AGENT—Is your real estate agent experienced in working with short sale buyers? Know how short sale transactions differ from regular transactions? Provided you with sufficient documentation to help you know what the current value of the property is?
   
   
2. TIMING—Are you aware that it could take months (several months) for you to get an answer and go to closing on a short sale? Can you afford to wait for an indefinite period of time? Can you STAY in your current housing until you get closed—however long that might be? Did you know you can decide to walk away anytime you want to even though you have made an offer? Simply tell your agent to rescind your offer if you want to consider another house. (You know to do that in writing, yes?)
   
   
3. NEIGHBORHOOD—Have you done the research you need to do to be sure that the back side of the neighborhood is as appealing as the front side? Are you comfortable with the mix of owners vs. tenants in the neighborhood? Is the neighborhood moving more toward tenants? Are homes well-kept or more of them in disrepair? Have you driven the area at night—do you feel comfortable with the nighttime look and feel of the area you will be calling home? Is there a significant numbers of homes empty—whether for sale or otherwise available for occupancy (rent, lease, etc)? Are property values still falling or have they hit a plateau? Where did you check? (and don’t tell me you just asked your agent). Are you comfortable with the levels of taxes in the area? Are there any special assessments which you need to consider? If there is a neighborhood association, how financially sound is it? Have you stopped and talked to neighbors to see what is REALLY GOING ON IN THE NEIGHBORHOOD?
   
   
4. PROCESS—Did your agent carefully explain the short sale process to you? Did you ask for a response based on how long you are willing to wait (2-3 months) or based on the traditional practice of allowing only a few days? You wrote an offer which was presented to the local owner/seller but then forwarded to their lender/servicer for consideration. Are you aware that the lender may/will consider multiple offers and then make a decision on ONE of them? Were you warned that the Lender may counter your offer—after a very long time—even months after you initially wrote the offer? Are you prepared to increase the amount you are willing to pay or risk losing the house? Have you pre-determined how much you are willing to pay? May I suggest that should be the amount you should offer in the first place?
   
   
5. RISKS—Are numerous but forewarned is better than being caught off guard. Risks include:
   
   a. The SELLER may file bankruptcy—and the house cannot be sold to anyone
   
   b. The LENDER may foreclose and the property become unavailable
   
   c. ANOTHER OFFER may be accepted instead of yours (even if the seller signs your offer that does not mean that the LENDER/SERVICER is going to approve your offer instead of another one which they have received)
   
   
6. LONGTERM—Have you carefully considered whether this house meets your long-term needs (say for the next 10 years)? Lifestyle? Location? Size? Amenities? Condition? Does it have ‘growth potential’?
   
   
7. FINANCING—Do you already have a firm loan commitment from your institution—not a pre-approval? You should start out with a /loan commitment/ to increase your chances of getting your offer accepted and to avoid any surprises down the road. Can your lender use the appraisal recently acquired by the selling institution in order to speed up the process at the end? Did you know that your earnest money check should not be cashed until AFTER you have an offer accepted by the LENDER who is the real decision maker on a short sale transaction? (That could be 3 months from now.)
   
   
8. INSPECTION—Are you aware that most states allow you to have inspections on any property which you wish to acquire (including REO’s, short sales and anything listed ”as is”?) Is your agent encouraging you to have a full property inspection as a way to be sure you fully understand the ACTUAL condition of the property you want to acquire? (Good agents will insist that you should, especially on a short sale which probably has not been well maintained if the home is in foreclosure). Are you aware that you can decide NOT to move ahead with the purchase if the inspection shows some substantial issues which are unacceptable to you?
   
   
9. REPAIRS—Are you prepared to cover the cost for any repairs which are needed immediately (and in the near future) once you close? Have you gotten estimates based on the items uncovered during the inspection?
   
   
10. GETTING TO THE CLOSING—Are you prepared to wait a few or several months to get to the closing date? Are you comfortable knowing you may be asked to increase your offer amount at the last minute, once the lender knows EXACTLY how much is needed to make the deal work under the guidelines from the Guarantor on the loan?

I am a firm believer that if you point someone in the right direction, they will usually get where they were headed. These are not ALL the questions you need to be asking but you are certainly headed in the right direction.

A short sale does not have to be a nightmare. Not with an experienced agent and a well educated consumer. Good luck with your new home experience.

Copyright © 2008, 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.)

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.)

WORD: Debt Consolidation and Debt Consolidation Loan

And the WORD for Today is:

Debt Consolidation—means refinancing multiple debts into a new loan. Unfortunately, consumers are frequently encouraged and agree to roll several short-term unsecured loans into a long term loan secured by their mortgage as a consolidation loan. This type of loan is seldom a good idea and frequently leads to default and possible foreclosure.

Debt Consolidation Loan—with this type of loan you pay off unsecured debt such as credit cards or department stores with a loan which is secured by collateral such as your home. Debt consolidation loans have been very popular during the past few years while interest rates on home mortgages have been really low. Unfortunately, many consumers did not realize the increased risk of default and possible foreclosure which they assumed when they made this loan. Without a large equity cushion the borrower would not be protected in the event of a decrease in property value. The unstable and declining home values in many parts of the country during 2007 has caused a substantial number of borrowers to become unable to meet the payments on these type of loans due to sliding interest rates coupled with loan-to-value rations too high.

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: Equity

And the WORD for Today is:

Equity—the current market value of the property MINUS any and all liens against it (mortgage, etc or any other legally enforceable liens). Example: You have a home, which cost you $150,000. You have an outstanding 1st mortgage of $120,000, a 2nd mortgage of $10,000 and no other applicable liens. The current market value of the home is $160,000 with total debt of $130,000 the homeowner’s equity is $30,000. If property values have declined in the area and the current market value of the above mentioned home is only $125,000 the house is what is being called ‘upside down’. There is NO EQUITY and instead the owner owes $5,000 more than the market will bear.

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: Appraisal

And the WORD for Today is:

Appraisal – is a document which is used to give an estimate of a property’s fair market value based on its condition. An appraisal is usually requested by the lender as part of the loan process and one purpose is to determine if the value of the house is at least as much as the loan being requested. Since the house will be the security for the loan, it is reasonable for the lender to need this assurance. Lenders also use the appraisal to determine the loan-to-value ratio, which will let them tell you how much of a down payment is needed. The consumer pays for the loan and is entitled to see a copy. The appraisal is seldom provided to consumers; instead consumers will be given a disclosure at closing which tells them how they can get a copy by mailing in a request at a later date. They will only be able to do so for a limited period of time and seldom do consumers discover that they need the appraisal until AFTER the time frame to make the request has expired. YOU SHOULD KNOW THAT YOU ARE ENTITLED TO HAVE A COPY PRIOR TO CLOSING. THE APPRAISAL HAS BEEN COMPLETED BEFORE CLOSING, YOU PAID FOR IT AND IT IS IN YOUR BEST INTEREST TO GET A COPY AT OR BEFORE THE CLOSING.

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: Modification of Loans

FACT: A modification of your loan is possible for all loan types. However, that possibility can be complicated by:

1. Whether or not you still reside in the home
2. The lender has sold the loan into a loan pool
3. The insurer/investor is willing to allow a modification

To modify a loan means that the old loan is permanently changed and new loan terms exist. It can be a powerful option for a borrower who is in default. The things which can be altered or modified on a loan include:

1. The interest rate being charged (usually lowered by the modification)
2. The term (or length of the loan) (can be reset for another 30 years)
3. The principal balance (can be lowered if the value of the property has decreased)

Either one of these can be modified or a combination of them. The goal is to create a NEW loan which is reasonable and sustainable based on the borrower’s current circumstances including income and the current value of the real estate.

New legislation is slated to allow bankruptcy courts to force lenders to agree to a reduction in the outstanding balance (the so-called cram-down) when a borrower can demonstrate that the value of the home is less than the mortgage payoff.

Copyright © 2008, 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.)

WORD: BPO

And the WORD for Today is:

Broker Price Opinion—an evaluation of a property’s value which a servicer uses as an alternative to getting a full appraisal after a loan has gone into default. The BPO is usually performed by a licensed REALTOR familiar with sales in that geographical location who typically will complete the BPO based on a drive-by exterior examination, data from public records (including recent sales and number of existing properties available for re-purchase). As more consumers slide into default, more lenders are using the BPO to help determine what is the most likely re-sale of the subject house is valuable information in determining what workout or loss mitigation options they are likely to offer to the consumer. The BPO is especially important tool when short sale is being considered.

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: Private Mortgage Insurance Carrier

And the WORD for Today is:

Private Mortgage Insurance Carrier – a limited number of companies (roughly 10) in the United States who are providers of private mortgage insurance (PMI). While the consumer pays the premium for such coverage the beneficiary is the lender. Such coverage protects lenders from anticipated risk of default when borrowers have accumulated less than 20% of the property value as a down payment.

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 atwww.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.)

Reflections on the Home Affordable Loan Modification Program

The Obama Administration announced the H A M P program with great fanfare on March 4, 2009. It was a bold step to address the foreclosure problem which was clearly swirling out of control. $75 Billion committed to reducing loan payments. Projected to help more than 4 million homeowners.

It Began With a Premise

Foreclosures in the country were occurring at break neck speed and something had to be done. The plan was conceived based on the premise that homeowners would pay their mortgages—IF they could. Despite being upside-down, borrowers are committed to retaining their home. Warren Buffet has been quoted as saying “Commentary on the current housing crises often ignores the crucial fact that most foreclosures do not occur because a house is worth less than it’s mortgage (upside down). Rather, foreclosure takes place because borrowers can’t pay the monthly payment they agreed to pay.” It is a premise with which I agree and an honorable premise on which to craft a resolution.

A Look At the Program

H A M P or Home Affordable Loan Modification Program was launched with the specific and ambitious goal of making sure that millions of Americans would have the opportunity to remain in their homes even though market dynamics and other factors beyond their control meant the value of the property had declined AND they were struggling with payments but they wanted to keep their home. The goals were clear, the mandate receiving strong support. It seemed a good thing—for all the right reasons.

Reduction in Payment

To address the ‘ability to pay’ the H A M P plan provided guidelines for getting those payments under control. Conservative banking guidelines for many years had shown that mortgage payments at no more than 31% of a borrower’s income usually prove to be sustainable so that OLD underwriting guideline was used as a benchmark for what should be the new goal to help us get out of this mess.

To accomplish this, lenders and their servicing partners were provided with guidelines to make this happen:

a. First, Reduce the payment amount so that it was no more than 31% of the borrower’s monthly income

b. Reduce the interest rate to as low as 2% as a way to get the payment down farther

c. Extend the term of the loan—up to 40 years—further reducing the monthly payment

d. If the payment amount was still more than 31% of the borrower’s monthly income, THEN funds from the H A M P fund would be used to pay whatever was needed to get the payment down to 31% of monthly income

Adjusting the principle balance was not an option addressed by this plan even though it was a logical step (in the opinion of this writer) and had been the objective of the ‘cram down’ component of the bankruptcy reform legislation defeated late in 2008.

Criteria for Participation

H A M P was created as an option for owner-occupied properties with outstanding balances of $729,750 or less. The homeowner was required to demonstrate a hardship caused by a factor or factors beyond their control. It applied to loans originated prior to January 1, 2009. Modified payments were set up for 3 months, as a test to see if the borrower could afford the new payment.

If they made that threshold, then the loan modification became permanent (for 5 years, so let’s say, semi-permanent).

Investors or speculators were exempted from participations. So if you had bought into the hype that building a piece of America was the way to financial security, you were on your own. Consequently, it was expected by a number of observers that the number of foreclosures in this segment would rise dramatically, and RISE they have.

Incentives

In order to facilitate this voluntary program, the H A M P initiative provided for financial inducement to all parties to participate. Servicers (and/or the lenders whom they represented) were to receive $1,000 for each completed modification. The plan called for an additional $1,000 for each year the modification remained in place with a cap after 3 years. The borrower could get $1,000 off their principal balance for each year, up to five years.

“Net Present Value” Test

In order to determine which loans should be modified, lenders/servicers were to conduct a ‘net present value’ test. The test was supposed to compare the expected cash flow which would be generated under the program (with a modified, performing loan) as compared with the expected cash flow if the loan were not modified (and continued non-performing if the borrower were already in default). Let’s see, some $ paid, versus $0 paid. Not a hard test really. Seems like a no-brainer to me.

Good intentions for a worthy cause. So how did it go wrong. Why have consumers across the country been yelling fowl by the hundreds of thousands? Why has the Administration acknowledged that the program has not reached nearly the scope that they projected? We’ll provide those assessments in tomorrow’s blog. Don’t miss it.

Copyright © 2008, 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..."Are You Ready to Intervene?"

Twenty Questions for Today’s Real Estate Professional

I was recently asked by the Charleston Trident Board of REALTORS® to differentiate the (FIS) Foreclosure Intervention Specialist certification from other short sale certification programs. Please know that the Board has offered both the (SFR) (Short Sales and Foreclosure Certification) and the (LMC) (Loan Modification Certification) certifications which are excellent programs.

Both have been widely attended in Charleston and I strongly encourage you to sign up for one or both at the next opportunity. Every single licensee should avail themselves of a basic short sale class so they have a rudimentary understanding of this ‘new’ transaction which is dominating the market in many parts of the country.

(FIS) will be offered for the first time in South Carolina beginning March 2010, courtesy of a FPR (Foreclosure Prevention and Response) grant from NAR. I think the operative word of distinction is ‘basic’ as compared to ’comprehensive’. This 30 hour program is designed for the agent who has decided to commit to getting an in-depth understanding of the various facets of handling these intricate transactions—the relationship connection, the Law, the Ethics, property valuation, the process, the negotiating, getting to the closing table, the downside, the resources needed, community partnerships, the self-study to continue to grow and much, much more.

Why offer (FIS)? Because hundreds of students who had taken either the 4 or 8 hour basic short sale training classes offered by Home Ownership Matters beginning in 2003 demanded more. More time, more expansive, more details. The course evolved and in 2005, the (FIS) certification was introduced in Ohio. Since then (FIS) has been approved for CE credit in six (6) states and there are graduates from twelve (12) states. States approved for CE include: Ohio, Indiana, Kansas, Nebraska, Colorado and Oklahoma.

30 hours, 700+ pages of material.

Tried and true methodology coupled with sound philosophy

from a former Fannie Mae Broker-Specialist

Updated regularly and state specific (Law section)

I decided the easiest way to say what you’ll learn is to pose the questions which will be addressed.

Are you ready to intervene?

1. Do you know how to distinguish a ’frozen customer’ from a potential short sale client? Do you currently use an intake form to determine who is a viable candidate for this type transaction and who is just not prepared for the commitment? Can you screen OUT the 60% of folks whom you should not list as short sales?

2. Are you prepared to analyze/distinguish the many HATS which may be required to help someone who is in default: the social worker, medical counselor, marriage counselor, human resources helper, spiritual advisor, budget counselor, salesperson extraordinaire, valuation expert, etc.

Are you real clear on what role you can and/or should play? Are you connected to/familiar with the community resources to address those needs which are outside of your scope of expertise? Do you currently utilize a referral form for this purpose? Can you see the potential for a fair housing complaint (or other complaint) without some standardized referral policy/form?

3. Do you know how to ‘handle’ the law while avoiding the ‘practice of law’? Do you clearly understand that it is necessary to understand some components of the law (and be able to explain them to your client) as part of a short sale attempt or an REO purchase?

4. Do you understand the impact of the seller filing bankruptcy on a potential short sale? The increased likelihood of a deed-in-lieu? Do you currently discuss this at the onset with your customer since it could/should end your relationship if they file later?

5. Are you familiar with the new Treasury guidelines for short sale—other than the fact that the commission cannot be reduced below 6%? Have you studied the guidelines? Do you understand them?

6. Are you familiar with the foreclosure law in your state? Is it a judicial or non-judicial process? What difference does it make? The guidelines for service on a defaulted borrower? Familiar with what the customary forms are and what they look like? Are you aware that violation of state foreclosure law can work in a borrower’s favor to gain extra time which could be used to facilitate a short sale? Or a reverse mortgage?

7. Do you have the expertise to accurately determine the value of a property in today’s declining market? Are you familiar with the professional BPO which is used as the industry standard (fanniemaebpo.com)? Could you complete one and do you understand why it can be much more accurate than the more commonly used CMA or market analysis? Are you clear on why accurate property valuation, from the beginning, plays such a critical role in the success or failure of your short sale effort?

8. Do you feel you clearly understand the unique protocol for short sales, not to be confused with REO and traditional sales? Who signs what? When? Presentation of offers? To whom?

9. Have you figured out what to disclose? To whom? And when?

Are the guidelines set by your Broker consistent with both Federal and state requirements/prohibitions on disclosure? Are you clear on the Who? What? When? HOW?

10. Are you familiar with your Board and Broker’s position on:

a. Disclosure—Who? When? How?

b. Commission—Who? What? When? How?

c. Signing of offers/amendments/price reductions—Who? When?

d. Presentation of offers—To whom? When? Signatures? Why?

e. Multiple offers—that is a whole other 20 questions

11. Does your brokerage utilize a set of disclosure forms which have been customized for the use with short sale scenarios? Are you familiar with them? Do you understand the protection that you may gain from covering the special risks associated with short sale transactions? Are you interested?

12. Do you understand the tax implications for a borrower who has completed a short sale? Please don’t tell me that you thought they were off scot free because the short sale was approved. (They are not) Do you have a referral to a tax accountant?

13. Have you read your state’s Seller Disclosure Law? Have you studied the state disclosure form? Does it include a reference to “threatened or pending litigation“? Or perhaps “notices from any Government or quasi-governmental agency”? Any “challenge to the title”? Are you clear on why any/all of these could forestall a short sale approval and therefore need to be disclosed?

14. Do you have clarity on the impact of a foreclosure on your customer’s ability to purchase down the road? Was that part of your discussion about the reason to consider a short sale in the first place? Have you discussed operating ‘in good faith’ as vital to the ability to keep the house on the market?

15. Is there a 2nd (or 3rd) mortgage? Are there other potential liens against the home (home owners’ association, taxes, personal judgment) which must be dealt with? Got a plan for how you are going to handle those? Do you know where to start?

16. Do you clearly understand the role of the Guarantor and/or the investor in determining whether or not a specific short sale can be approved? For that matter, do you know that the Servicer is merely a go-between hired to facilitate the administration of the loan but is NOT a decision maker? Who is? How can you find them? What are THEIR guidelines? Are they the same from Guarantor to Guarantor? Available in public records?

17. Are you familiar with the Qualified Written Request—backed by Federal Law (RESPA, no less) and the impact it can have as a ‘tool’ in delaying the foreclosure process if well-prepared? Used effectively and in a timely manner, you can gain valuable time to complete the short sale. We’ll cover that.

18. Has your firm/Broker created a “hold harmless” document which covers the scenarios which you cannot be responsible for with the clear understanding from your client that you will have no liability? Since the risk of lawsuit is pretty high with this new type of transaction, getting some understanding of what should be included and why should be paramount, I would think.

19. Have you identified as an agent/brokerage/Broker those scenarios which will require you to end the relationship? Have you established a policy concerning the need for a unilateral (not mutual) release? Under what circumstances, with what notice?

Certainly advance disclosure would be required: I would recommend at the inception of the agency relationship. We cover in detail during (FIS) training what I call the “Divorce Decree”. What happens if the client abandons? Files Bk? Enters into a deed-in-lieu? Refuses showings? Fails to cooperate in other ways? Policies should drive practices and both help to minimize liability.

Proper training and thorough understanding on each of these issues is paramount in order for you to be both effective at processing a short sale from beginning to end AND avoid the various opportunities to get yourself or your client into serious trouble along the way.

Short sales are the new reality for many markets around the country. They have become a major part of the market (along with REO’s) and becoming intimately familiar with how to process them successfully is paramount for any agent who wishes to thrive in today’s market.

If you do not already have clarity on ALL the issues which have been addressed in this article, then you are a prime candidate for the (FIS) certification program. Each of these will be explored and addressed during this 30 hour training program. You will leave with clarity on every single point covered here and will have the expertise to feel confident that you are representing your client with strong tools which have prepared you to be successful in getting the result you hope for and they deserve. YOUR knowledge base is a key component of your professionalism. Your success as a REALTOR® is tied directly to the caliber of your information.

Don’t miss an opportunity to learn, explore and interact with one of leading instructors on this timely topic. Her experience actually doing short sales, her time with Fannie Mae as a Broker-Specialist and expansive training (HUD, Fannie Mae, NeighborWorks, Legal Services, and National Consumer Law Center) can be invaluable to you.

Sign up today! Coming soon to a classroom near you!

Final Question

Is there someone in your office to whom you can refer a customer who needs short sale help? Within your firm? Maybe you can/should become that ‘Referral agent’ if you do not have the expertise today.

Are you Ready to Intervene????

*(FIS) is a registered trademark of Home Ownership Matters, LLC.

Other Foreclosure Resources

1. www.HOMwebinar.com

3. www.HomeOwnershipMatters.com — Calendar and Foreclosure/Loss Mitigation sections

4. www.nti.org — NeighborWorks America — Training Institute

5. www.consumerlaw.org — National Consumer Law Center

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.

(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.)

Short Sale Fast Facts for Consumers

Short Sale Fast FACTS for Consumers

1. Short Sale could be your solution—but it has some pitfalls

Get informed and Get started

2. Short Sale is an Option Not a RIGHT

You will need to “qualify” for the option to dispose of the house by using a short sale.

Most lenders use the same basic criteria—what I call the “Universal Hardship Test”

• Was the default ‘trigger’ something beyond your control
• Did the trigger lead to an increase in expenses or a decrease in income?
• Are you still an occupant in the home secured by the loan?
• Have you depleted all of your assets available to make mortgage payments?
• Are you willing to pull together the documents required by the lender/guarantor to determine if they believe you qualify for a workout?
• If there is a co-borrower, are both parties committed to this workout attempt?

3. Finding a competent REALTOR could be difficult

A short sale is a Speciality transaction. You need to find a

REALTOR who:

• Works full-time—yes, even in today’s climate
• Is experienced in short sales (means they closed)
• Is familiar with your area and price point
• Whom you feel comfortable with
• Who is able to demonstrate to you what the value of your home is compared to similar homes in the neighborhood
• Has the ability to effectively market your home
• Is pleased to share with you that they have had specialized training in Short Sales (I mentioned this last, because if they haven’t mentioned by now, it is because they don’t have any—Not a good sign)

4. You can list the home for short sale—BEFORE the lender approves the

short sale—

**As long as you indicate that “all offers are subject to lender approval” This should be included on your listing contract, on the seller disclosure form and within the comments on the MLS sheet

**You can’t ACCEPT and CLOSE without the lender’s approval but you don’t have to wait to get started. Why not start today? Is your house ready? Do you have the documents needed for the hardship package?

5. Might leave you with a deficiency—which could be used to get a judgment against you

Negotiate to get the lender to agree to “waive their right to a deficiency judgment” as part of the short sale approval letter.

You should NEVER assume that because the lender agreed to the short sale that they have waived their right to pursue you for the shortage.

If it’s not in writing—signed by an authority—you should expect them to pursue you for the shortage.

6. Foreclosure process—will most likely continue, even while you have the house on the market for sale

FHA loans which are subject to HUD regulations—require that the foreclosure process STOP while the home is marketed for short sale

Foreclosure action continues on ALL other loan types

7. Listing Termination—can be mandated by your lender when you are in default

The Lender is not a party to the listing contract and you might logically assume that therefore they had no say so about what does or does not happen with the attempt to sell your home.

Unfortunately, you would be mistaken.

Government guarantors, HUD, VA, USDA, Fannie Mae, Freddie Mac, and Rural Development have the right under Federal regulations to compel you to withdraw the listing IF:

You are cooperating with showing the property as a show of ‘good faith’

Title issues are uncovered which would prevent the transfer to a new buyer

The condition of the property is such that a sale is unlikely

You have failed to comply with request for information to determine your eligibility for a workout. Remember: This is an Option, not a RIGHT.

8. Second Liens can present a challenge—also known as a ‘stumbling block’

Second lien holders seldom initiate foreclosure; they block short sales all the time with their obstinacy. You cannot transfer real estate to a new buyer when there is a second lien holder without their cooperation.

They must either:

a. Release the lien

b. ‘Lift’ the lien and permit the closing

Usually they can be enticed to do one of these things, preferably the first. Many will accept a token payment as a settlement for the obligation if foreclosure is imminent and they stand to get nothing after the lien is wiped out. Other they may agree to an unsecured loan in exchange for

their cooperation.

Your lender may make a contribution toward getting this second released, especially if you have a government backed loan. Their regulations have a stipulated amount set aside for this purpose. Get your facts and get going.

9. Tax Implications—Didn’t Your REALTOR mention that?

When there is a deficiency (difference between what you owe on the house and what the new buyer is willing to pay for it) you are taxed on that amount as though you received it as a gift.

IRS rules require that the lender provide this information directly to IRS for tax purposes.

You should NEVER assume that because the lender agreed to the short sale that they have waived their right

10. Now about signing those papers…….WAIT

I believe strongly that the seller of a property which is upside down would do well to pretend their fingers are broken once they have signed the listing contract and seller disclosure form until Mr. Smitherman, the supervisor at the bank, has:

a. Approved their short sale, with all continguences

b. Given them permission in writing to sign something

As a trainer, I take the position that ‘lender approval’ means getting the lender’s approval before you agree to anything with a potential buyer.

That means do not sign a purchase agreement, no matter what contingency clauses have been included by a so-called sharp REALTOR. Do not sign a counter offer. I said, ‘pretend your fingers are broken until the supervisor at the bank tells you to sign something.

If you sign BEFORE he tells you to, you are agreeing to terms which he has not yet agreed to. You cannot perform (or deliver the deed to the house) without his agreement. He may:

a. Select a difference ‘potential purchaser’

b. Counter and ask for a lot more money

c. Go ahead and foreclose, then you have nothing to sell.

Don’t get ahead of the bank. “Lender approval required” means the bank gets to decide everything: to whom we will sell, and for what amount, on what terms. Don’t allow yourself to be lulled into thinking it’s okay to make an agreement and then get his approval. That is risky business. Remember, your fingers are broken.

Please share today’s blog with someone you know who is struggling and not sure what steps to take next.

Copyright © 2008, 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.)