SHIFT - Mastering Short Sales
Presentation/Notes by Barbara Horan, Keller Williams Realty Temecula
INDIVIDUAL SLIDES WITH NOTES
v Phase 1: Preforeclosure. The time line for foreclosure will vary from state to state and from lender to lender. It typically begins with the homeowner’s first missed payment. v The lender will begin adding late charges and may call or send collection letters 16–30 days after the first missed payment. v Approximately 45–60 days after the missed payment, the lender will notify the homeowner that the loan is in default. Usually, the homeowner will have 30 days to send the missed loan payments plus late fees to avoid foreclosure. v After about 90–105 days, the lender will send the homeowner a Notice of Intent to Foreclose. This notice initiates the legal proceedings of foreclosure and is usually made public. v Phase 2: Public Auction. Depending on the state, the home will be offered at auction after 150–415 days from the first missed payment. v Phase 3: Postforeclosure. Depending on the state again, after the home has been offered at auction, it may go into a redemption period. In the redemption period, the homeowner can buy back their home if they can pay the lender the entire loan plus additional fees that have amassed. Not all states have a redemption period. In states that do have a redemption period, it is typically 150–415 (or more) days after the homeowner’s first missed payment. The home becomes real estate owned (REO) by the lender if it doesn’t sell at auction
There are numerous personal and market events which could produce significant financial challenges for a homeowner. Some possible reasons are
- The homeowner may have secured a subprime loan. The initial interest rate on an ARM is set below current rates. At specific time intervals, it resets to match the current interest rate. About 450,000 people per quarter through the end of 2008 will most likely see significant increases to their monthly loan payments.
- The homeowner may have secured an ARM with the intention of refinancing, but is unable to do so. With more rigorous lending criteria, it is more difficult for homeowners with ARMs to refinance their loans into fixed-rate mortgages.
- The homeowner may have secured a zero-down loan. A zero-down loan means zero equity at closing. As a result, the homeowner has no equity to fall back on.
- The homeowner may have lost a job or divorced a spouse. Meeting a monthly loan payment can very well be dependent on a job’s monthly inflow of cash or on the monthly inflow of cash from two incomes.
- A devastating event in the homeowner’s life can have serious financial repercussions, ultimately making monthly loan payments an insurmountable financial issue.
- Market shifts with price declines compound all of these issues. If the home is worth less, the homeowner may be unable to sell the home in order to cover the balance of their loan, especially if they have little or no equity.
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- Forbearance – the lender could agree to temporarily suspend or reduce payments.
- Mortgage modification – the lender could agree to permanently change the terms of the loan to reduce the monthly payments.
- Refinance with an FHA-backed loan – In July of 2008, Congress passed a housing bill to help homeowners avoid foreclosure. According to the provisions of the bill, homeowners facing foreclosure who are owner-occupants can refinance their loans into a lower fixed-rate, FHA-backed loan. The original lender agrees to take a loss on the loan and the homeowner agrees to share any future price appreciation with the government. This arrangement costs lenders less than a foreclosure and it saves the homeowner from foreclosure.
- Your Solutions-Based Unique Selling Proposition (USP): Build a USP that highlights solutions and professionalism. It’s a unique way of stating the benefits that you bring to your customer. Then highlight your USP in all of your prospecting and marketing.
- Notice of Default Lists: These are recorded with the county clerk at the county recorder’s office. You can search these records for free.
- Public Notices of Auction: You can look for Public Notices of Auction at the county recorder’s office as well. Alternately, you can search your local newspapers for this information, or you could look online at www.foreclosure.com. Be aware that your time to work a short sale may be foreshortened if you find a customer through a Public Notice of Auction.
- FSBOs: FSBOs could be financially distressed homeowners who are trying to remedy the problem by themselves.
- Lenders: Leverage the relationships you have with lenders by asking for referrals when someone is in preforeclosure. Lenders who market with agents can be strong business partners in many ways—this is one of them.
- Listing Appointments: In your listing appointments, you may find sellers who are in preforeclosure and are potential short sale customers. Dick Dillingham, dean of KWU faculty, politely asks his appointments, “Are you current on all your mortgage loans?” to open this conversation.
- If the market value of the home is more than the loan amount, even if current market value is less than what the homeowner paid, the homeowner will have to list and sell their home in order to pay off the mortgage. Lenders are only interested in working with sellers when it makes business sense for them. They will not be interested in a short sale if they can recoup their loan through a typical sale.
- Facing foreclosure does not automatically make someone a good candidate for a short sale. If the homeowner has money or assets elsewhere, the lender will not be interested in negotiating a short sale. A short sale will usually cost the lender less than a foreclosure, but the lender is still losing money.
- The homeowner should be able to demonstrate a hardship that made loan payments impossible by being able to compile documentation that proves the hardship. This information will be added to the short sale proposal that will be submitted to the lender. If the homeowner’s loan rate adjusted, you’ll have to obtain copies of the loan statements. If the homeowner encountered medical issues, you’ll want to gather copies of those bills. If a spouse died, you’ll have to request a copy of the death certificate.
- The homeowner must be willing to cooperate with the agent, lender, and buyer. The homeowner will have to turn over private documents and be willing to wait for answers from the lender, while making nothing off of the sale.
- Bankruptcy: If the homeowner has filed for bankruptcy, the court or trustee must approve their entering into a listing agreement. Additionally, in some states, the homeowner is protected from foreclosure by bankruptcy laws. Keep in mind that bankruptcy is a legal issue. Unless you are also a lawyer, you should not dispense legal advice.
- PMI: PMI insures the lender against the homeowner defaulting on their loan. The lender considers short sales only when it makes business sense for them. If their potential loss from a foreclosure exceeds the insured amount, they may be willing to do a short sale. If not, they won’t be.
- Imminent Foreclosure Date: In some cases, lenders will forestall foreclosure if the short sale process has been initiated. If the public auction date is less than two weeks off, you can contact the lender to explore other options or to initiate the short sale process. However, if the lender will not stop the foreclosure process as a result of your communications, you should keep in mind that you may not have enough time to complete a short sale.
- Authorization: In order to speak with the lender on the homeowner’s behalf, you’ll have to obtain and submit the homeowner’s written authorization. Oversee this process and make it happen as quickly as possible. Some lenders have forms, but in most cases a short note will suffice. Fax the authorization to the lender as quickly as possible.
- Communication: Then call the lender and ask for:
- Systematize: You’re going to want to communicate with the lender regularly.
- You should demonstrate that the homeowner will go into foreclosure if a short sale isn’t completed, and
- That it will be difficult to sell the home for full price after foreclosure
- For the sake of clarity, you may want to specify in your listing agreement with the seller that you are going to list the home at a price lower than their estimated payoff.
- You may also want to include a sentence that says you will present any offers to the seller before you submit them to the bank.
- Lenders are very unlikely to negotiate repairs, and your homeowner may be unable to make them.
- If it’s optional in your MLS, enter “Short Sale” in the agent remarks to draw agents who have customers well suited to short sale purchases.
- If necessary and appropriate, you may have to be flexible on the commission. You can build good will with the buyer’s agent by splitting the commission fifty-fifty with them.
- Be careful! If the lender accepts, the buyer should be ready to follow through.
- Time for lender to approve (at least 30 days)
- Buyer may have to close within 30 days of approval
- You may want to develop a disclosure that details the peculiarities of a short sale and then obtain both the buyer’s and seller’s signatures on it. (Find an example in the appendix of An Agent’s Guide to Short Sales, Foreclosures, and REOs, and on www.kellerwilliamsuniversity.com.)
- Each loan should have its own proposal. Send out additional proposals for secondary loans as applicable.
- Services are available to help negotiate short sales. They either take a percentage of the commission or they are paid by the lender.
- Some agents say that their markets don’t justify the systems necessary to work short sales, and they refer short sales to agents who specialize in them.
- Your preparation in Step 1: Gathering information should help you to ensure there are no additional liens on the house.
- As a courtesy, alert the closing company that this deal is a short sale, and offer to answer any questions they have. Some closing companies may be unfamiliar with short sales.
- ask the seller for a testimonial and add that testimonial to all of your short sale materials, including your website;
- put the seller in your Met Database; and
- put the seller on a 33 Touch marketing campaign that emphasizes your professionalism and problem-solving abilities.
More PowerPoints From KW Family Reunion 2009:
Priced To Sell – Delivering Effective CMA’s
SHIFT: Catch People in Your Web:
PRESOLD – The Power of a Prelisting Package
Marketing: Reach More People in Less Time
Grow Your Profit Share Tree and Amplify Your Life!
KW Family Reunion 2010 in New Orleans!
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