Chase Wants 20% as the 2nd Lien Holder

I wanted to use this post to share an example of how we all as Realtors can easily get caught up with what we think are changes across the board with some of the banks we are negotiating with short sales.

Recently while negotiating a file with 2 liens, Chase sat as the 2nd lien holder. Imagine my complete shock when the Chase negotiator stated they wanted no less than 20% of their balance to release the lien. He went on to say that anything less would close the file. I've heard that 'we'll close the file' remark more than enough to know it is 90% smoke and 100% crap. Sure they might at some point close a file but who the heck cares. A closed or denied file is just permission to step pasted them to someone above them.

But the point of this post is that unchecked and without previous experience of being lied to and manhandled by a negotiator I may have believed that 'oh my, Chase needs 20% to clear the second'! After doing some homework and calling to some passed negotiators I've worked with they confirmed that 10% will usually clear the lien and in tight offers they will accept as low as 5%. Additionally I found that my current file was in Tampa and that the negotiation team boasts the highest recovery rate of the Chase teams out there. So just in case you catch yourself in a similar scenario just remember when in doubt revert to the numbers. Is your offer better than the amount they would see if the property forecloses?

By the way when you hear them say it's okay if it goes to foreclosure that they have 'other means' to collect. Please don't panic or fall into this trap. There is nothing secret to worry about. They are most often referring to their right in certain states to go after the deficiency after foreclosure.

BankUnited Sold, Another one Bites the Dust!

And the hits just keep on coming. BankUnited was SOLD to a private equity firm. Not a huge shocker I guess. Whether you were keeping an eye on BankUnited themselves or just the banking industry in general, we all know it's not over.

So how does all of this and events like this effect us Short Sale Agents day to day? Well as I think of most of my short sale listing appointments the first thing that comes to my mind are the home owners in stress with loans from a bank like BankUnited. To most it is a big unknown and a huge addition to their stress. For now I don't see these sales having a huge impact on my short sale clients or even the negotiations. But I would suggest you do your best to stay current on these events as they will most likely pop up as questions as you meet new clients.

Avoid the knee-jerk reaction to give answers you don't have. Too many of us Realtors really want to help but completely forget about the legal ramifications to dispensing advice on subject matter outside of our real estate licenses. If you have a client stressed about their bank going through a similar issue, encourage them to contact the bank or do a bit of research themselves. They'll get the information they need and you get to keep your license for one more year. :o)

For more information on BankUnited's sale check out the article on Bloomberg.com at http://www.bloomberg.com/apps/news?pid=newsarchive&sid=azOHOtxuEFJY

Second Lien Wants More Money!

Month by month the issues related to negotiating short sales grow and evolve. One month it all seems to make sense and then crazy stuff starts to happen. So what can you do to get your deal through when you are having some challenges with the 2nd lien?

It all goes back to setting your seller expectations. Over a year ago most 2nd liens wanted at least 20% to release the lien. Six months ago they seemed to work through with 10% or less and now we are seeing a turn back towards the 20%. And the 1st lien of course only wants them to get $2k for everything. I always like to fight and negotiate the heck out of the deal. But there are times when, as the negotiator/Realtor, that it might make sense to let the deal move to close even if it might cost someone in the transaction some money. (I don't even like typing this, feels like giving in but . . . sometimes it will make more sense based on your seller's needs and desires).

We solve this problem by setting our seller's expectations. During our listing appointments we advise the seller that we will work towards a closing that will not require them to bring any money to the closing table. We explain how hard we work towards this end but that they need to prepare for the possibility from the start that some money may be needed. I always suggest they try to save 3% of what the sales price might be. This seems to be the magic number for us at least. During our most difficult negotiations with the 2nd lien this amount would almost always make up the difference the 2nd lien wants with what the 1st lien is going to give them.

As for someone suggesting 'well the problem is they have no money' I suggest you stop assuming some of this. If an owner knows from day 1 they might need a small amount of money and for 3% of the sales price they can clear a hefty debt from their backs, it all starts to make sense to them. And given enough time most owners can find a solution to getting some of that money.

But still fight the fight, nothing is cooler when all seems lost and you pull it all out because of your great negotiating skills, contract knowledge, sparkling wit and amazingly good looks ;-)

Bankruptcy, Loan Modification, Short Sale

It's a bit like Paper-Rock-Scissors. You need to keep in mind what one does to the other if you are going to work with short sales. Initiating one might just stop the other.

So here's what I suggest you keep in mind; Bankruptcy trumps both Loan Modification and Short Sale and Loan Modification trumps Short Sale. Simply put if you get one of these in motions it may impact something else you are trying to do so when in doubt - check it out. For example most banks in the process of reviewing a short sale will stop and cancel the short sale if they receive a loan modification request from your seller. This can be a huge problem if your seller is not communicating with you and they initiate a Loan Modification request while you are working your butt off on a short sale.

It can be different from bank to bank so play it safe. Make sure you instruct your seller to communicate with you prior to doing something that contradicts your actions. But be very careful here not to step in the middle and tell them to stop all together. You might be walking yourself towards a lawsuit by telling them not to do something because it potentially conflicts with 'your' preferences.

Arrogant SOB & "Guidelines"

Going for a little shock value with the title of the post but I'm a bit rev'd up today. It's very frustrating to deal with some of these negotiators. The urge to attack them verbally, with phrases like 'you're rubber and I'm glue . . .' come to mind.

It's an absolute trial of your Zen mastery skills communicating with some negotiators. But when all is said and done they are just trying to do their job. Right? Umm, sure, let's call it that for now. But the ignorance of some of them is beyond my imagination. But no matter, it's only self-serving to attack back. But don't get pushed around either.

You might find that some of them 'threaten' to close the file while you are trying to work the deal. They will tell you things like 'well the investor guidelines' or 'the bank guidelines' won't allow for it. Don't panic, let them and then escalate it around them. Keep in mind any pending auction/foreclosure date. But if you have some room then their denial is your go ahead. The tough part is keeping the other parties in the transaction calm while you push this through. The knee-jerk reaction is to give in and accept their bully tactics, asking for reduced commissions, no seller concessions and anything else completely out of line. They are counting on this from you. Closing the file is no big deal at all. Try to look at it as the next step towards your approval.

Why Would any Bank Deny a Short Sale?

Let's get past the obvious one first here. If the initial offer is way too low then forget about it. Some banks don't counter back at all in these situations. Well maybe with a 'give us a better offer' but often with no details on the actual price the want. There are always exceptions but be prepared for some crazy responses.

A big issue is the second. We all understand or believe that if the 2nd lien holder doesn't take the measly pennies offered from the first they won't get a dime. So as Realtors we pound our all-knowing chests and spout out 'you're crazy it's this or nothing'. Well not if the 2nd lien has purchased their own PMI (Private Mortgage Insurance). Some lenders have done this on their loans. So if you are dealing with a second trust that is fighting hard, not necessarily a HELOC, then ask the question - Do you have PMI on this? If they say yes you can see why they are sticking to their guns. If it forecloses they will still get 20% back from the PMI insurer.

If this is the case and the 1st lien holder is holding tight on the amount then get on the phone/fax/email and explain the situation and that if they don't allow the amount to the 2nd they are looking for that they will not release the lien for sale.

FHA Short Sales

Short sales that are FHA insured. If you have not had one yet you will soon. These are handled a bit differently and I feel the process has been a good one over all. There is a system in place and it must be followed.

A few highlights . . .

- There are required documents, use them (see links below).
Submission of Form HUD-90036 and the subsequent approval supplied on form HUD-90045 are required prior to listing the home for sale. Form HUD-90036 is completed and signed by the seller and submitted to HUD through the lender servicing the loan.

- For the first 30 days of marketing, mortgagees may only approve offers that will result in a minimum net sale proceeds of 88% of the "as-is" appraised Fair Market Value (FMV).

- During the next 30 days of marketing, mortgagees may only approve offers that will result in minimum net sale proceeds of 86% of the "as-is" appraised FMV.

- For the duration of the marketing period (60 days), mortgagees may only approve offers that will result in minimum net sale proceeds of 84% of the "as-is" appraised FMV.

-HUD will not allow a buyer to inflate the purchase price to cover seller concessions requested.

- $1000 potential seller gift if they contract and close within 90-days of listing.


HUD's Information Page oh FHA Short Sales (PFS - Pre-Foreclosures Sales)
http://www.hud.gov/offices/hsg/sfh/nsc/faqpfs.cfm

HUD Forms
Mortgagee Letter 2008-43 (MS Word doc file)

Hud 90035 Information Sheet

Hud 90036 Application to Participate

Hud 90038 Homeownership Counseling

Hud 90041 Request for Variance

Hud 90045 Approval to Participate

Hud 90051 Sales Contract Review

Hud 90052 Closing Worksheet


And an FYI - All HUD Forms are listed and can be downloaded here!

Overall they system is defined and workable. I like it because the lender MUST follow the HUD requirements and that reduces some of the bulls@#t that some of them seem to like to stir up sometimes.

What is a realistic price to the bank? Do they counteroffer?

Typically the banks are looking for a percentage of the BPO value as the realistic price. Fine if the BPO is in line, not so great when you get a bad BPO returned.

As a buyer agent I would think about this especially if the home your buyer is interested in is priced way under market value. If you have an investor that wants to steal a deal as it were and ride it out hoping for positive results then I think that is okay coming in low. But if you have a buyer that would like to occupy and the list price is way off the market value it is best to consider getting the offer in line. I suggest an offer around 92-95% of market value has a better chance of being accepted. The reason is that at a 95% offer and after most concessions and commissions it will bring the NET to the bank in the 86-88% range and that should work well. But even as I post this these numbers a sliding down a bit.

So if your buyer/occupant wants to test the waters with a low offer that is their option. If I were their buyer agent I would like to know they would come up as needed to seal the deal based on any sticking points. After all we are not in the business of writing offers for the mere practice of it.

Often a doesn’t typically counter back the offers on price the way you would think. If the offer is unrealistic they just deny it more often than not. This is another area where the competence of the listing agent or negotiator is important. A decent negotiator/listing agent after getting a ‘no’ will push back trying to get something everyone can work with. At times this might mean escalating the issue past the loss mitigator currently working the file. Too many agents hear ‘No’, ask why to the initial loss mitigator only to hit a wall. They hit the wall because that loss mitigator often has no authority to go beyond the guidelines in front of them. I am seeing this start to change a little now for the better but not across the board yet.

In reference to something like a counter the bank(s) might come back with limitations to the initial offer. For example stating that the most in closing cost fees they will pay is 3%. So if your buyer asked for 3% concessions any additional fees above that the bank is stating they don’t want to pay. This one is scary because if the listing agent doesn’t read that letter correctly and truly understand what they are asking you could go all the way through closing to find out the amount to the bank was wrong based on their paying more than agreed in the approval letter.

Typical counters from the first:
• Commissions (of course)(but don't do it)
• Total closing costs including the seller concession request
• Amount they will give to the 2nd lien, if one exists
• Paying property taxes
• Paying outstanding HOA fees or for resale documents
• Paying recording or other miscellaneous settlement company fees.

Typical counters from the second:
• How much they will accept to release the lien
---Often more than the 1st will pay
• Commissions again
---This one is just stupid to me as is does not affect their bottom line as any reduction in commissions would be paid to the 1st.

In response to these counters the money needed to meet whatever is finally negotiated can come from a few areas
• The buyer
---Increasing the sales price
---Reducing closing cost concession requests
• The seller
---Bringing money to the table to make of the difference
---Selecting to sign a promissory note as needed to appease one or both of the banks. Not typically an attractive options to the seller and sometimes not something the bank might want (strange, I know).
• The Realtors - But hopefully you do not allow this to be an option!

So Who is My Client? The Bank or Home Owner?

For many of us we know the answer to the question who is our client during a short sale. But honestly it is a good question to answer for those who have not stopped to ask the same question.

Simply put the home owner and not the bank is your client during a short sale listing. All things being equal the only difference is the need to get the banks approval for the agreed sales price. Will they accept a lower payoff to release the lien? You will most likely see this noted in other posts but remember this as you stay tuned into your fiduciary responsibilities.

Fannie Mae - No Negotiation of Preforeclosure Sales Commission

Great news shared from our state association today that affects all of us across the U.S. negotiating short sales with Fannie Mae.

Here is the article (abbreviated) sent out to us from VAR (Virginia Association of Realtors). We heard about this 2 weeks ago but seeing it 'in print' as it were is very comforting.

Fannie has now announced that effective March 1, 2009, the approval and closing of short sales will not be conditioned on the willingness of the listing firm to alter its fee arrangement with the borrower, as long as the total commission does not exceed 6%. The official guideline is set out below.

No Negotiation of Preforeclosure Sales Commission

Servicing Guide, Part VII, Section 504.02: Contacting Selected Borrowers
Effective March 1, 2009, closing of preforeclosure sales may not be conditioned upon a reduction of the total commission to be paid to real estate agents to a level below what was negotiated by the listing agent with the borrower, unless the fee exceeds 6 percent of the sales price of the property in the aggregate. Servicers are reminded that they must continue to obtain any approvals that may be required by interested third parties in connection with preforeclosure sales.

Here is a link to the new Fannie Mae guidelines (18 KB PDF download) and the page at eFannieMae.com which shared this news.

Submitting a Winning HUD-1!

The most important tool in your negotiating arsenal is your HUD-1. Some agents send in a Net Sheet that is 'estimating' the numbers and the dollars the bank will get. There are some problems with this in my opinion.

If you submit a Net Sheet or a loosely calculated estimate of what the bank will net with your short sale it could become an embarrassing situation when the bank approves this after some long negotiations only to find out the number was wrong and low. If you plan on doing short sales on a regular basis then you need a good relationship with a reliable attorney/closing company to pull your title and get you the most accurate HUD-1 from the start.

Here are the keys to a winning HUD-1 for submission to the bank.
- Make certain taxes and fees that may be due are calculated out months down the road to a date you think it will actually close. Often this date is 3 or 4 months out from the creation of the HUD.

- Have the title search run to find any additional liens. Too often a client has told me there were no liens and we find one anyway. Add this to the HUD and estimate the cost to close it 3 or 4 months down the road when the sale might close.

- Include HOA/Condo fees and find out if your client is also behind on these. If they are find out how far behind and again add additional months as needed to match your estimated close date.

- Separate HUD's for a 1st Lien Holder and the 2nd Lien Holder if two loans with separate banks. The HUD to the first shows a larger payoff to the 2nd, while the HUD to the 2nd shows a low offer to them (the 2nd). Both banks will almost always say push the other way. The 1st will say they don't want the 2nd to get that much and the 1st will ask for more. Preparing the separate HUDs sets you up for success and meeting in the middle.

- Get your attorney/title company paid. Know from the start that many banks won't pay recording fees and overnight fees, things of that nature. Suggest from the start that your attorney roll their fees together (where allowed) into their settlement/closing fee on line #1101.

- Also you need to know that it is very hard to get the banks pay for home warranties or inspections. So if they need to be paid either the buyer or the seller will need to pay for these so try to keep them off of the seller side of the HUD if you can.

I hope this will help you get that much closer to easier negotiations. As always if you have questions or concerns talk with YOUR broker. If you are your broker then, umm . . . ? :-)

But the Bank Told Me . . .

The bank negotiators job is to make certain the short sale offer fits their general guidelines for acceptance AND to get as much money as possible for the bank. Just as you are setting expectations for your seller and the buyer agent in your transaction the Bank Negotiator has some tactics as well.

Whether it is at the start of one of your submissions or during it you might hear a negotiator tell you something like 'and remember we won't accept short sales with over X% commission'. They might make a statement about the seller needing to pay 'X-dollars' for the short sale to be reviewed. Don't waiver from your path, send the offer over as you have it without the seller bringing money and without reducing your commission to match their "requirement". If they contact you after stating you need to make changes to the offer to match those requirements I strongly suggest that you do what you can do to get it reviewed as is. Use your negotiating skills and if needed escalate the offer to someone else.

If your offer is strong enough and close to Fair Market Value (FMV) then there is no solid rationale for the bank not approving your offer. The issue here is YOU believing and understanding this.

I guess what I want you to take from this post is that you work for your seller and not the bank. So don't make the mistake of letting the bank 'tell' you anything that could mean money out of your client's pocket.

Negotiate your Contract

I know it can be hard when you are trying to get an offer an the clock is ticking loudly behind you with a pending auction date. Don't let your sense of urgency override your responsibility to your seller.

I see so many Realtors uncomfortable with advising the seller to counter the offer made by the buyer on their short sale listing. In the end it is your seller's choice but don't scare them away from the process of negotiating the price and/or terms of the offer. Remember that a lower offer approved by the seller's bank may potentially mean a larger exposure to the balance of the debt if that same bank decides to come after the owner for the balance at a later date.

Know your local contract!

Even without the existence of short sales it is important as Realtors to know our contract well if we are going to do a good job. Not that I can give it more importance due to short sales but not knowing your contract can put everyone in a bad place. Short sales take longer giving more opportunity for a loosely negotiated contact to give way to some very big problems.

We recently had a long and very drawn out negotiation with Countrywide (1st) and Wachovia (2nd). Actually both banks were fine to deal with, very professional during the transaction and giving us approval to close. As we got closer to closing and per our local contract we kept pushing the buyer agent for the release of the financing and appraisal contingencies. We were in a tough spot because our only course of action if they say no or keep delaying it is to void the offer, which we did not want to do for obvious reasons.

The morning of closing we get an 'email' from the buyer agent stating the buyer is unable to come to closing and the offer is void. < < insert cold sweats and panic heart rate here > > But because we know our contract and my exceptional negotiator, Jacqueline, properly documented the agreed closing date each time it was moved or delayed we were okay. You see our local contract automatically removes all contingencies at midnight prior to the closing date. So her having documented and having all parties sign and acknowledge the date we were able to protect our client. If we were lazy about all of it and left it as a verbal then we would have been in a bad spot for our seller. Long story even longer after about a week delay from the original date the buyer did come to the table and sign the papers to purchase. << Thanks to Jacqueline for doing a great job and saving a $360k sale but more importantly helping our seller avoid foreclosure! >>

Know your contract, document everything as needed and never take bad news as the end. There is always an answer if you stay calm and think it through. Okay sometimes things just crap out on you. But more often than not difficult and seemingly impossible situations can be overcome by stepping back and thinking it through.

Best of luck!

Submitting Authorization Forms versus your Short Sale Package

If you are newer to short sales all of this may seem overwhelming. So I'd like to share some basic information you will need to know when working with short sales. This post talks about fax numbers and knowing the difference between the numbers some banks have.

You will learn quickly that tracking numbers down and getting things to the right locations can be a challenge at the start. You need to know that many, not all, but many banks have separate fax numbers for where you send the authorization form versus where you send the actual short sale package. So knowing this you want to make sure to ask very specific questions to the banks when gathering this information. Ask if the authorization form you need to send in goes to the same number as the short sale package.

Do yourself a favor and make sure to start collecting information on each bank and negotiator you work with. This is a great resource as your business grows.