Did Your Lender Get Your Package?  

All of the pages? Are you sure? Several lenders have limits on how many pages their faxes will accept. They also contradict themselves in a way. They ask for a hardship letter, pay stubs, tax returns the offer the counter, financial statements, BPO etc (see Secret #3) but at the same time they limit the number of pages that they can receive. (Citi Mortgage 61 pages, GMAC 116 pages) So what do you do if you have more pages than they can accept? You need to break down your package into smaller packages and mark them 1 of 3, 2 of 3, 3 of 3 always referencing the loan number.

What if the fax receipt shows they received all pages? Within 24 hours you want to call and check to see if they received the package and (this is important) HOW MAMY PAGES DID YOU RECEIVE? If less then you sent you need to figure out which ones are missing.

How do I know this? I have closed over 120 short sales and you learn as you go. So remember how many pages did they receive?!  Until the next secret.

Sherman Smith

Sherman Smith & Associates

Sherman@shermansmith.com

(714) 544-5445

Quick Approvals On A Short Sale!

Approval delays are caused by three problems! #1 A bad short sale package! (see Secret #3) This is the biggest problem. Also don't send ANYTHING to the lender until you have EVERYTHING! If you trickle things in it slows down the process. Every time something is missing it can add a week or two to the approval.

#2 Price. Lenders will accept between 93-85% of the REAL VALUE. Lenders aren't stupid and you can't steal the property. Only submit REAL offers at acceptable prices. If the offer comes in low, counter it! This shows the lender that you have their interest at heart. Even if the offer is a good offer but not at full price counter the offer. If the buyer won't come up in price you can tell them you will you will submit the lower price but the lender can you tried. This is important to getting the offer approved at the price you submitted.

 #3 FAKE OFFERS. A lot of agents submit FAKE offers to see what the lender will take. You know the Real Value of the property (or you should if you have been in this business very long) so only submit offers that fit within the 93-85% range. Every lender could speed up their process if all of the fake offers were out of their systems. Plus it is not honest or morally right.

I have closed 120 short sales an get approvals like this: SLS-7 days, EMC- 9 days, ASC-12 days, Citi Mortgage 14-days, Wells Fargo-14 days, Homecommings-28 Days, Provident Funding-30days etc. etc. With the exception to WAMU/Chase & Countrywide/BofA none of my short sale approvals take more than 45 days, most less than 30 days.

Now here is the big surprise to most agent: ALL of the 120 were approved at the price I submitted them at!

How do I know this? I have closed over 120 short sales and you learn as you go. So remember the package is the key! Until the next secret.

Sherman Smith

Sherman Smith & Associates

Sherman@shermansmith.com

(714) 544-5445

Order! Order In The Court!

Order just makes things work better. In all parts of life order is important. Especially with a Short Sale Package. This is the key to a quick approval. (See Secret #4 for Quick Approval) Your package needs to be neat, clean and in the proper order. Think of a Short Sale Package as an un-approval loan package. You want to prove that your client is not capable of continuing to make his payments. Your package should contain the following:

Table of Contents

Short Payoff & Proposal Letter

Authorization of Borrower/Seller

Borrower/Seller Hardship Letter

Copy of 1st Mortgage Payment

Copy of 2nd Mortgage Payment (if any)

Copy of HOA Monthly Statement (if any)

Copy of Paid or Delinquent Taxes

Affidavit of Arms Length Transaction

Financial information Worksheet

Last 2 Employment Pay Stubs

Profit & Loss if Self Employed

Last 2 months Bank Statements

Last 2 years Tax Returns

IRS Form 4506-T Request for Transcript

Copy of Listing Agreement

Copy of MLS Print Out

Copy of Offer w/Counters

Buyers Pre-Approval Letter

Buyers Proof of Funds

Copy of Estimated HUD1

CMA or BPO Supporting the Price

Supporting Documentation (ie. Pictures)

I can hear it now... Not every lender requires all of that! Your right! Now tell me which ones do and which ones don't!  Exactly my point. Since you don't know, send EVERY lender the same thing and they can throw away what they don't need. This is how you avoid delays. (See Secret #4)

How do I know this? I have closed over 120 short sales and you learn as you go. So remember Order! Until the next secret.

Sherman Smith

Sherman Smith & Associates

Sherman@shermansmith.com

(714) 544-5445

The Loan Number!

What is the big deal about the loan number? It is very important. First and foremost you want to see the most recent mortgage statement to obtain the loan number. The reason for this is with all of the new bank takeovers (ie. Countrywide-B of A, WAMU-Chase, Wachovia-Wells Fargo, etc) some loan numbers are changing. Some are adding digits to the loan number and others are changing all together.

Next, EVERYTHING the lender does is referenced by the loan number.  That being the case, everything you send the lender should have the loan number on it. Yes everything, the sellers pay stubs, tax returns, the offer, counter, BPO etc. Remember if there are two loans on the property there are two different loan numbers so don't get them mixed up. (See Secret #10 for a time saving trick on changing loan numbers on documents)

How do I know this? I have closed over 120 short sales and you learn as you go. So remember the loan number!  Until the next secret.

 Sherman Smith

Sherman Smith & Associates

Sherman@shermansmith.com

(714) 544-5445

Do You Know How To Slow Down Your Short Sale Approval!

Many agents do it all the time and don't know that it is happening. Do Not Mail, FedEx, or Hand Deliver your Short Sale Package! I do not care how pretty it is or how much stuff you have in it, FAX it! That right fax it to the lender. Because of the volume that the lenders are doing they are utilizing high speed data imagining systems. This system takes the fax and converts it to a PDF then assigns the file to the correct loan number (loan numbers secret#2). If you mail the package it gets sent to the scanning department and someone else is going to fax your file to the imagining system. (I will bet you they don't care that much about keeping your file in order.) (order that's Secret #3)

I can hear it now, but my file is 128 pages! So! I have faxed short sale packages as large as 259 pages. This is how you get short sales closed Fast.

 How do I know this? I have closed over 120 short sales and you learn as you go. So Fax them in!  Until the next secret.

Sherman Smith

Sherman Smith & Associates

Sherman@shermansmith.com

(714) 544-5445

The Define Benefit Plan Dilemma

For those of you who know what a Define Benefit Plan is I need your help.

I have a client who wants to take $500,000 from his Define Benefit plan and buy 2 properties.  He will spend $500,000 for each property and put 50% down in cash on each. A Define Benefit Plan will allow encumbered real estate in the plan as long as the purchase note and trust deed is a non-recourse note. The problem I am having is I can not find a lender who will loan on a Define Benefit Plan. I have found several who will loan on an IRA but not a Define Benefit Plan (DBP).

Here is the criteria:

• No paperwork (none! Nada! Any!) can be in my clients name
• The vesting and purchase agreement will be: "The Trust Company, Custodian for, John & Mary Doe Define Benefit Plan, Account #4567890"
• All paperwork will be signed by the Custodian
• No money from the client can be deposited into escrow (not even the deposit)
• The deposit must come from the DBP
• All loan documents must be signed by the Custodian
• All future bills and payments will be made by the Custodian
• After the purchase there must be 20% of the purchase price left in the DBP

As you can see this is a very good loan but I can not find anyone who will make the loan. I am seeking your help for a lender who is making this type of loan.

Sherman Smith

Sherman Smith & Associates

(714) 544-5445

Sherman@shermansmith.com

Short Sale Suicide...and How To Prevent It!

Also How To Determine If A Listing Agent Is Committing Short Sale Suicide...

A Two Part Series Presented by Sherman Smith

Part Two

The Buyers Agent and Short Sales

Now I have told you what to do if you are the listing agent, but what do you do if you have a buyer who is interested in a listed property that is a short sale?  Well first off, I try not to show any short sale listings that I have not talked to the listing agent first.  Here is what I want to know:

• Do you have an approval from the bank?
• Do you currently have any offers on the property?  If yes, how many and did you send them all to the lender.  If there are offers and they sent more than one to the bank, forget the property.
• Is there a true hardship and what is the hardship? If there is no real hardship forget the property.
• How many owners are on title? If more than one are they all in a true hardship? If not forget the property.
• How many short sales have you closed? If very few offer to help or do the short sale for them. It is probably the only way it will close anyway.
• How many lenders on the property? Is there any equity for the second or third? If not how will you get them off the property? If no answer, forget the property.
• Have they been in contact with the banks? If so what has the bank said? If not why? Consider forgetting the property.
• Does the seller have all of the banks required documentation? If not things will be delayed.
• If you were to receive my offer and another offer at the same time would you send them both to the bank? If yes forget the property.
• Last but not least ask "What do you think the chances of getting this through are"? If the listing agent says 50% or less, consider forgetting the property. They have no faith in what they are doing.

Now you can see why 50% of all short sales fail to close. It is the listing agents fault for not doing their homework.

Notes: I use bank and lender synonymous with all type of lending institutions. The information here is not carved in stone. It is in generalities as to how short sales are done and yes there are exceptions to every situation.  This is a guideline as to how to not waste your time on deals that can't be done.

Sherman Smith                                                                                                                           

Sherman Smith & Associates

1173 Irvine Blvd Tustin, CA

 (714) 544-5445                                                                                              

Sherman@shermansmith.com

www.shermansmith.com

  READ PART ONE CLICK HERE

Short Sale Suicide...and How To Prevent It!

Also How To Determine If A Listing Agent Is Committing Short Sale Suicide...

A Two Part Series Presented by Sherman Smith

Part One

I am about to upset some of my fellow agents but they need to hear this.  However before I do, I want to give you my qualifications in regards to short sales.

I have been selling real estate in Orange County, California since 1978.  I have my own brokerage company named, Sherman Smith & Associates, which I founded in 1989.  At the time of writing this I have completed 105 closed short sales with a large variety of banks, savings & loans, finance companies, insurance companies and private note holders.  I have negotiated as little as a $15,000 loss and as much as a $386,000 loss on a multiple unit building.  Through these transactions I have learned what works and what does not.

With no further introductions here goes the upsetting information!

 It is no wonder that 50% of all short sales do not close.  It is because of the listing agents!  Yes, the listing agent! They have no clue what they are doing; they have taken one of those short sale seminars given by someone who has never completed a short sale. I have seen these seminars/workshops that cost anywhere from $49.00 to $2,400.00.  I have to say I could tell you everything you would ever need to know about a short sale in about 3 hours.

Why do I blame the listing agent?  Well, let me tell you what they are not doing and what they are doing wrong. In other words, how they are committing short sale suicide and killing their own sale.

Seller does not qualify for a short sale:

The Numero Uno most important part of the short sale is:  Does the seller qualify for a short sale?  Is there a legitimate hardship?  What is the reason the seller can't continue making the payments or why do they have to sell?  This is the make-it or break-it part of the short sale.  Don't waste your time if the seller does not have a true hardship.  There is another way called "Hardball" if the seller does not have a hardship but that is only for experienced short sale agents. (Well talk about that another day.)

More than one seller on title:

If there is more than one seller on the property they better both have a hardship.  If one has good income, other properties, etc and the other one has a hardship the short sale is not going to fly.  Don't waste your time unless the strong one is willing to contribute to the loss.

All Payments are current:  (Seller does not want a late on their credit report)

If the seller is not behind in their payments, the lender has no reason to expect that the seller will default.  Your seller MUST be behind in their payments to get the lenders attention.  Ask your seller this question: "If push comes to shove, will you let the property go to foreclosure"?  If their answer is "No" they are not serious and don't waste your time on the short sale because it probably will not happen.

Listing the property with less than 45 days to the Trust Deed Sale:

The seller is in foreclosure and only has three weeks before the bank takes the property.  There is no time to get things done unless you have a cash buyer for the property.  Lenders will not hold up the foreclosure so you can find a buyer.  I make it a policy that I need a minimum of 60 days but you can still do it in 45.

Pricing the property too low:

The property's real value is $450,000 in this market.  You list the property at $350,000 to attract buyers and figure the bank can counter the price.  Don't do that!  List the property at $465,000 then after two or three weeks lower the price to $450,000 (given you have time).  After another three weeks lower the price to $435,000 and so on.  This way you are showing the bank that you are trying to get them the most money you can for this property.  As you get closer to the Trust Deed sale, you must get more aggressive with the price but at the same time, you need to show the bank you are looking out for their best interest too.

Offering a selling agent commission above 3%:

I see this one all the time.  As a matter of fact, this past week I saw a listing with an 8% commission to the selling agent.  In the remarks it said "commission subject to the lenders approval and split 50/50".  There is not a lender out there who will let you pay a selling agent anything above 3% so do not try to fool anyone with the exaggerated commissions.  If you see it on a listing don't get your hopes up because it won't happen.

Telling the selling agent that their commission is subject to the banks approval:

Who wants to show a property to their client without knowing what they are getting paid?  No one; you see it on almost 95% of all short sales.  As I stated before, I closed 105 short sales.  Of the 105, two or three sales I received less than 5% total commission.  I would be willing to bet that on 75% I received 6% total commission and the balance I received something between 5 and 6%.  Since I wanted other agents to show my short sale listings I promised them a full non-negotiated 3% no matter what I received.  Bare in mind, I almost always received 5 to 6% and agents were not afraid to show my listings.  If agents do not show your listings it won't get sold!

Forgetting who is your client:

Your client is NOT the bank!  Your fiduciary relationship is with the seller. Yes, the bank must approve the shortage but your fiduciary relationship is not with the bank.  You must look out for the best interest of your seller.  Sometimes that means going against the wishes of the bank; I will explain below (See No Doc Loan (Liar loan) vs Tax Returns).

Offering to pay closing cost or carpet allowance:

Don't offer to pay closing cost or a painting allowance.  The bank will not allow that cost.  They won't allow you to pay anything above title, escrow, recording, back taxes and association dues. They won't even pay for repairs or a home warranty, so don't offer!

Not countering the offer:

You receive an offer on the property.  The buyer has low balled the price, wants a long escrow, and wants the seller to pay $10,000 of the buyers closing cost.  What do you do?  You meet with your client (The Seller) and draft a counter offer eliminating the things you know the lender will not take and try to get the best price you can from that buyer.  When you think you have done the best you can, you then send the offer along with the counters to the bank.  The bank now can see that you have tried your best to protect their interest.

Sending more than one offer to the bank:

You receive more than one offer on the property.  What do you do?  NEVER! NEVER! NEVER! Send more than one offer to the bank at a time.  Do I have to repeat myself?  NEVER! You meet with your client and either counter both offers to get the best one or you pick one offer and send it to the bank.  You have no obligation to present all offers to the bank.  This only confuses the bank and slows the process.  You have already countered the offers and sent the best one anyway.  If another offer comes in while you have one at the bank it will become a backup offer in case the first offer goes away; but do not send it to the bank.  Keep it until you know the status of the first offer.

Not sending ALL the required paper work at one time:

Most banks will not approve the short sale with out an offer.  Some will, and by all means, do so, if you can. It is so much easier if they will start the process without an offer.  However, since most banks will not, make sure that your client completes the documentation prior to you receiving an offer on the property.  This will enable you to process the short sale faster.  The bank will have a list of their required documentation.  Be sure that you have it ALL and ready to go before you get the offer; when you send it to the bank make sure you have everything that they require.  If you piece meal it, the short sale will be delayed or worst yet reject.

Organize your required paper work:

I would suggest that you have your lender help you put it in a file just like they were submitting it for a loan approval to an underwriter. The first time I did that the processor called me to tell me that it was so organized that she was going to process it right now!  Now not all lenders will do that but it does help and it gets noticed because no other agents are doing that.

Not making a copy of EVERYTHING you send to the bank:

The bank will loose your complete package or at least part of it.  Be sure that nothing is sent to the bank that you do not have a copy of.  I can't tell you why but I can tell you that it will happen.

No Doc Loan (Liar loan) vs Tax Returns:

This one is delicate. Did your client buy this property with a "No Doc Loan"?  If so, you may have a problem if the lender is requiring tax returns for the short sale and they don't agree with the original loan docs.  I am not an attorney and don't give legal advice however this could appear to the lender as a little fraudulent (like being a little pregnant).  This is where you have to advise your client to seek legal advice of refuse to supply the tax returns to the lender.  This makes the short sale harder but not impossible.

Don't take No as a final answer:

Don't take a turn down as the final answer.  Some lenders turn you down to see what the seller will do.  Will the seller resume with their payments, make a contribution to the loss?  There is always a reason to go back to the lender for another try.  Don't forget the old saying "Threes a charm".

Notes: I use bank and lender synonymous with all type of lending institutions. The information here is not carved in stone. It is in generalities as to how short sales are done and yes there are exceptions to every situation.  This is a guideline as to how to not waste your time on deals that can't be done.

Sherman Smith

Sherman Smith & Associates

1173 Irvine Blvd

Tustin, CA 92780

(714) 544-5445

Sherman@shermansmith.com

http://www.shermansmith.com/

READ PART TWO CLICK HERE

President Bush signed into law today a new measure giving tax breaks to homeowners who have mortgage debt forgiven through a short sale or foreclosure. The current law states that the debt forgiven by a lender, such as for short sales and foreclosure, were generally taxable to the borrower as debt forgiven income. With the passage of the Mortgage Forgiveness Debt Relief Act of 2007, a taxpayer does not have to pay federal income tax on debt forgiven for a loan secured by a qualified principal residence.

This tax break applies to debts forgiven from January 1, 2007 to December 31, 2009. Qualified principal residence indebtedness is debt incurred through acquiring, constructing, or substantially improving the residence (up to $2 million for refinances).

For purposes of calculating capital gains, any debts forgiven excluded from income under the new law must be subtracted from the basis of the taxpayer's principal residence (but not below zero). However, taxpayers may generally exclude from capital gains income up to $250,000 (or $500,000 for married couples filing jointly) for properties owned and used as their principal residence for at least two of the last five years.

This is great news for the wave of homeowners who are facing a short sale or foreclosure because of the credit crisis. However there are other issues to deal with if this loan is a FHA or VA loan. With FHA loans you will never be able to obtain another FHA loan again unless you pay back the loss on you loan. With a VA loan you will never be able to obtain another VA loan again and you will loose ALL of your VA benefits unless you pay back the loss on your VA loan. The Good News Is! The IRS Forgives You!

Excerpt From CAR 

NEW Dept Of Justice WEB SITE EXAMINES COMPETITION IN BROKERAGE SECTOR
The Antitrust Division of the U.S. Dept. of Justice launched a new Web site this week aimed at educating consumers about the benefits of competition within the real estate brokerage sector. The site, which is drawing heavy criticism from the real estate industry, offers user tools, such as a calculator to help consumers assess potential savings, maps of states with laws in place that the DOJ says inhibit competition within the industry, and links to government resource sites.

NAR characterized the site as a "flagrant disregard" for free competition, saying the Web site is being used as a promotional tool by the DOJ to push for a single, discounted brokerage services model, threatening to cut agent commissions in the process.

"The real estate market is very competitive," said NAR officials. "NAR encourages innovation and fair competition in real estate brokerage, and favors no business model." In addition, NAR added that real estate commissions remain negotiable across all sectors, driven by market forces to "attract clients and retain the best agents."

Here is the U.S. Dept. of Justice Release.

Excerpt from their website

Home Prices and Commissions over Time

Brokers typically charge a commission based on a percentage of the home's sale price. Over the past decade the average commission rate has remained relatively steady between 5.0 and 5.5 percent. As a result, the actual median commission paid by consumers rose sharply along with the run-up in home prices.

Unless broker costs were also rising sharply during this period of time, competition among brokers should have held commissions in check even as home prices were rising.

Realtors® income rose 22% over the last 10 years.

Chart Non-supervisory Workers ( The Average Joe on The Street)

Non-supervisory workers income rose 33 to38% over the last 10 years

Our goverment is saying that it is ok for the average Joe to get a 33 to 38% raise over 10 years but if you are a Realtor® a 22% raise over 10 years is gouging the public and there needs to be more competition. I bet you the Antitrust Division of the Department of Justice received a raise larger than 22% over 10 years! What do you think?

Sherman Smith

Sherman Smith & Associates

(714) 544-5445 or shermansmith@pacbell.net

shermansmith.com