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Huge short sale controversy

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Real Estate Agent

I've got an idea today that I'm sure is going to be controversial. The Realtor Code of Ethics states that: "Realtors, in attempting to secure a listing, shall not deliberately mislead the owner as to market value. This is under Standard of Practice 1-3. We are all having a problem with high BPOs. In fact, I met one agent who told me she tries to turn in high BPOs. This is what her real estate trainer recommended. Kind of interesting that a trainer would recommend agents break the code of ethics.

What is your opinion on this? Do you think we should start to file ethics complaints if a BPO agent turns in a unrealistic, high value? Or, what about the bank's position, if the house is foreclosed upon and the bank loses more money as a result? What if these banks start taking legal action against the BPO agents?

I have a listing that a BPO agent turned in a 340k value on. I got a BPO from another REO agent and she said the house was worth 280k. Should I file a complaint against that guy? Or, what about the asset manager at a bank.

They get a BPO and turn down a short sale as a result. The short sale offer was 160k. The house sells for 145k as an REO. Do you think that asset manager should go after the agent's broker? Remember, brokers have E & O insurance. Kind of interesting to think about, isn't it? What about the former home owner? Didn't they suffer emotionally? What if they owe the bank more money as a result of the foreclosure?

In my opinion, standard of Practice 1-3 was written for a reason. However, short sale agents are afraid to use it. Why is that?

View the Bank Fail Blog at http://www.BankFailBlog.com.

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Got questions about short sales? Just ask.

Ben Curry The Short Sale Agent's Advocate

Comments (103)

Maria Morton
Platinum Realty - Kansas City, MO
Kansas City Real Estate 816-560-3758

If the realtor has an agency relationship with a client, they are bound by the Code of Ethics to give their best advice and opinion.

Most REO's are not going to compare to other properties recently sold in a traditional sale because banks don't take care of their real estate. REO's, generally speaking, are cold, dark and smelly. They are rarely cleaned up and staged. As they sit under the banks' ownership month after month, they further deteriorate to become eyesores of the neighborhood, eventually attracting mice, rats, squatters and insects which further devalues the entire neibhborhood.

If you want to list REO's, part of your job will be explaining the house values to the banks' representative.

Feb 08, 2010 01:44 PM
Richard Weisser
Richard Weisser Realty - Newnan, GA
Richard Weisser Retired Real Estate Professional

To me, it's just as simple as being open minded and using true facts and figures to determine the true market value.

Feb 08, 2010 02:15 PM
Matthew Bartlett
Corcoran Global Living - Hill Top Team DRE Lic. #01353034 - Glendora, CA

Hi Ben,

Great point. It comes down to the BPO agent wanting to try and set themselves up for the listing down the line when the bank steps in.

Feb 08, 2010 02:34 PM
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

I've had unfortunate situations with high BPOs and even appraisals that don't make sense in the current market.

I like the idea of bringing up the conflict of interest on the BPOs.

Feb 08, 2010 03:32 PM
Danielle Pierce
Platinum Realty and Preservation - Chicago, IL
ADPR

A couple of points:

I have seen many comments above about how BPO agents are waiting in the wings to get the listing. I think in a lot of states, this is not even allowable. Certainly, in IL, if you have previously completed a BPO, previously listed the property or will be listing the property, you are not even eligible to receive the listing. This also applies to anyone in the company you work with.

The biggest issue I have with BPO's is the difficulty in trying to provide an opinion of value based upon a property you have only seen from the outside...and taken a couple photographs of. I do a lot of BPO's and you simply cannot tell the condition of the interior based on a review of the exterior. Often, they have something in common, but a lot of times they don't. So, then it becomes a matter of trying to get your report as "tight" as possible by using the closest comps in terms of distance, square footage, condition etc.

In any event, this was a good thought-provoking read.

Feb 08, 2010 03:45 PM
Elliott S. Topkins
Topkins & Bevans-etopkins@topbev.com - Boston, MA
Massachusetts Real Estate and Title Atty

Hey Ben--This is a great post because it has spurred so much variation in responses. Short sales in my state, Massachusetts, are becoming more and more important. At the same time, the way they are administered from lender to lender is ludicrous. One Lender will delay and impose ridiculous restrictions upon the process, either out of sloth or no real motivation to move things along. There is a mind-set in the lender community that things are "getting better" and we do better if we just slow the process down and get a better price in REO.

That may or may not be the case, but the differentiation in the way things are done,lender by lender, causes confusion. FHA Loans have Guidelines, Standards and Representations. Why can't a similar set of standards be set up for short-sales?

Require licensed appraisers to submit valuations. Theoretically, the bad old days of selecting your "best-friend" appraiser are gone. Give the lenders time limits for making decisions. If they decide not to accept, make them tell you what they would accept.

Each state has different local rules for closings. Somehow get a person or entity who is familiar with these costs to prepare the proposed HUD-1. Do not leave these things to Realtors who are conflicted. Do not try to do it yourself. Tack on a $150 fee to each short sale for a professional to prepare a legitimate HUD-1.

The more I write, the more I think this will be a future post.

Thanks for getting me all riled up a 12:45 AM on a cold Massachusetts evening.

Elliott Topkin

Feb 08, 2010 03:48 PM
Ross Therrien
Prudential Verani Realty, Londonderry,New Hampshire - Londonderry, NH
Realtor, Broker Associate

One solution is have the banks spend the extra $300 for an apprasier to do the BPO. No conflict there.

Feb 08, 2010 03:49 PM
Roland Woodworth
Blue Cord Realty - Clarksville, TN
Blue Cord Realty

Seems like some agents working BPO's try to aim high in hpes of getting a listing. In many cases, the listing is not even up for grabs.  One key thing is to read and understand the instructions. Some want fair market value not using distressed properties and others prefer disstressed properties to be used.

Feb 08, 2010 03:54 PM
Roger Johnson
Hickory, NC

In NC, this is "supposedly" solved as it's illegal for an agent here to do a BPO and get paid for it.  I say "supposedly" because there are still agents that do them, all the while risking their licenses over $50.  Dumb, Dumb, Dumb.

Feb 08, 2010 10:31 PM
Tony and Suzanne Marriott, Associate Brokers
Serving the Greater Phoenix and Scottsdale Metropolitan Area - Scottsdale, AZ
Haven Express @ Keller Williams Arizona Realty

Must head over to see if Renee blogged more about this.  We had this issue with one REO Agent (with no inventory) who inflated BPOs on two of our listings (compared to value from a licensed appraiser) by about 20%.  We had to dispute the values, which we did successfully, and 1 has closed, the other should shortly.  Once it has, the BPO agent will face COE violation charges.

Feb 09, 2010 12:23 AM
Michelle Rottach
RE/MAX Elite Homes - Bettendorf, IA
Scott County Iowa Real Estate

The lien holders on a short sales need to base their decisions on an appraisal not a BPO completed by the real estate agent with 3 weeks experience located an hour away from the property 

Feb 09, 2010 07:07 AM
Anonymous
Anonymous

As an agent who does BPOs and sells REOs and conventional residential sales, I've seen a lot. First, if I'm doing a BPO, my obligation is to the client, not my pocket.  Second, I can't tell you how many times my BPO for the listing of an REO has come in lower than whomever else got hired to do a swcond BPO.  The bank over prices hoping to get more money for the house and I end up with a stale listing. Eventually, after sveral price reductions, the house sells for my original BPO price. Go figure. 

On the other hand, appriasers can be quite off the mark.  I had a regular sale on a house that was not a typical home, but comps were available. It just required a lttle more effort on the appraisers behalf.  With the newer appraisal rules, they don't have to try to make it work and we can't talk to them.  The appraiser came in at 100k less than the sale price.  try to justify that to the buyers. Then the bank ran an automatic appriasal just based on numbers and that came in at 200K less than sale price.  The deal did close.

I think we all need to help each other out in this industry. Not at the cost of losing our integrety, but sometimes the home's value can go slightly one way or the other, both being justified with comps. As long as there is justification for our values, does it hurt to help someone make a sale.

Feb 10, 2010 09:08 AM
#96
Jorge Newbery
American Homeowner Preservation LLC. - Chicago, IL
American Homeowner Preservation

Like Missy, we've had many situations where the lenders lost out.

Offered a short sale and then a counter at 55K prior to sheriff sale. Both were declined due to high BPO. The comps in the area were significantly lower than the BPO and we identified a high number of repairs in the home but the lender still declined. House went to sale, homeowner was evicted. We were able to help the homeowner get back in their home--for 31K with a much lower net to the lender than that. Only one of many situations we've had where this has been the case. 

The BPO is used by lender's as the likely value, not the best case scenario. We've had trouble selling homes approved for 'short sales' because the comps in the area coupled with the condition of the home have made the home much more expensive than other, better conditioned homes in the area. Certain BPO agents really need to re-examine the values they submit and lenders need to re-evaluate the use of BPO's. 

Feb 12, 2010 01:10 AM
Ben Curry
Jacksonville, FL

Jorge,

Please send me more details on that house so I can post it on the Bank Fail Blog. What was the address and who was the lender?

Ben

Feb 12, 2010 01:19 AM
Renée Donohue~Home Photography
Savvy Home Pix - Allegan, MI
Western Michigan Real Estate Photographer

I am here letting you know I wrote a post about this just out of courtesy ;)

Feb 14, 2010 01:30 PM
Lissa Uder
RE/MAX Next Generation, LLC - Lebanon, MO
Your Lebanon MO Real Estate Agent

I must say, I am highly offended by several of the comments here. I won't point them out in order to be courteous, but some of you people need to learn a little about the BPO process and the agents that complete them.

Let me start by telling you that I AM NOT AN REO AGENT!!! I do not complete BPOs for listings, nor just for the money!!! Completing BPO assignments is another form of education for me. It forces me to look at properties and keep up to date on today's market. It is an added bonus that I get paid for doing so.

Now let me say that just as with becoming a REALTOR takes education and experience, I have obtained education and experience to perform accurate BPO's as well. I have attended many, many classes, have a certification, and the expertise through skill, knowledge, and experience as a REALTOR to give my "Opinion" as to the value of a property. My listings sell! Why? Because I have the knowledge through performing BPO's to price them right to begin with.

I will also add that I put a statement on my BPO's that my opinion was based on the assumption that the interior maintenance is conforming with the exterior and that true value cannot be determined without inspecting the interior of the home. I have also declined several orders because they were not in my territory. I do not feel it would be in the best interest of the homeowner or lender ordering the BPO to have an opinion of value completed by a person that does not know that market area.

I have read more than my fair share of blogs lately where agent's are using the comparison of REALTOR's to car salesman. Lumping us all into that category. It seems to strike a nerve with alot of you as I've seen some of your comments on those blogs. But what are you doing here? Generalizing the agents that perform BPO's as if we're all incompetent, stupid people. Shame on you!

And to top it all off, let's make this blog and comments public for the entire consumer base of the world to see us bashing each other. That should encourage them to have a little bit of faith in us as REALTOR's and our industry! NOT!

My rant is over.

Feb 15, 2010 02:34 AM
Ben Curry
Jacksonville, FL

You have a right to be offended. After all, it's a free country. Most BPO agents are good. But, there are a few bad apples. However, the sellers, buyers, and short sale agents are sick and tired of this mess. Sellers are not offended, they're angry. They are the ones getting stuck with a foreclosure on their record. In addition, the investors who own these loans are losing money. No, they're not offended. Instead they are losing millions of dollars because of the broken system. Take the example of a house in Gainesville Florida located at 600 NE 9th Ave.

If a big banks doesn't do their job, thereby causing the US Government to lose $182,000, but no one cares to notice, does it matter? You and I may not be aware that this is happening. However, if it is costing you and I tons of money, it does matter. A couple came upon hard times financially and were forced to put their home on the market. The home languished on the market with no offers. Finally, a $385,000 offer came in. They owed right around $375,000 and after paying all the costs there wasn't enough money to completely pay the bank off. So, they tried to do a short sale with the bank.

The bank was hard to work with and the buyer walked after waiting for 6 weeks without an answer from the bank. The second offer was for $310,000. This was in late 2007 when prices were starting to drop. The bank turned down that offer as well. The home ended up going back to the bank. What do you think it ended up selling for?

$290,000?

Maybe $275,000? Nope.

It sold for two hundred and thirty thousand dollars. All the costs added up to over $425,823.97. There was the $1,525 in attorney's fees, $32,395 in delinquent interest, $5,928 in hazard insurance, over $5,000 in property taxes, and a bunch of other fees. The loss was over $200,000. Fannie Mae lost over $182,000. In addition a bank called Beach First National Bank lost around $47,000. The unfortunate thing for the sellers is that Beach First could come knocking on their door any day looking to be repaid the $47,000.

Now that I've hopefully gotten your attention with this story, let me explain to you why it happened. The problem banks are entrusted to service loans for Fannie Mae, Freddie Mac, and other loan owners. This also applies to the "sliced and diced" mortgages. The servicer might be a company like Countrywide (now owned by Bank of America), Wells Fargo, or a little know company such as Home Loan Services. They act as the retail front for whomever owns the loan. Let me tell you about a "sliced and diced" Wall Street Trust loan and how it works.

The servicer might collect $1,000 from a homeowner. They get to keep $50-70 to pay themselves for doing all the paperwork, accounting, mailings, and for handling any collections. However, when a borrower goes into default their servicing fee often doubles or triples. The extra money is supposed to be used to compensate the servicer for the extra work involved on a delinquent loan. The first 90 days require some work calling the borrower and mailing them a few letters. But, after that first 90 days, about all the servicer has to do is tell the attorney to start the foreclosure. After that, there is little work involved. The attorney is getting paid by the loan owner, not the servicer.

Fannie Mae is now owned by the US Government. Any money it loses comes out of the taxpayer's pocket. On a Fannie Mae Loan, the servicer handles the loan almost like the example I just made. They are working for Fannie Mae (and the US Taxpayers at the same time.)

Now, let's go back to the homeowner in foreclosure. They want to modify their loan payments. Or, maybe they've moved and want to sell the house. They know that the house will sell for more money today in good shape versus after being empty for another six months. The servicer is making 2-3 times more money because the loan is delinquent. Do you think the servicer be motivated to work with the homeowner? Do you think they will be motivated to work on a short sale that will net the loan's owner more money?

No, because they wouldn't be collecting their big fees anymore. It takes 45-60 days to even get someone at most of these big banks to even look at a sales contract. You'd think they would have the money to hire on the staff, especially considering the extra money they're making on the delinquent loans. They're not hiring staff because the job market is super tight. I sell real estate for a living. When a seller entrusts me with their home, I am obligated to represent their best's interest. If I don't I can lose my license. It's the same way with lawyers. However, the mortgage servicers that handle someone else's loan aren't working to minimize their customer's losses.

Submitting a short sale to a lender is so tough that many real estate agents don't even attempt to sell them. And, buyers won't look at short sales because they know they might offer $150,000 today, wait for 2-3 months, and then be told that they have to pay $170,000 for the house they are looking at. Why not just buy a bank owned home? You can actually buy the home within 30 days. You get an answer on your offer in a week versus the 2-3 months on a short sale. You don't be at the mercy of a big powerful bank that can jerk you around.

This causes short sales to sell for less money, if they even sell at all. This means the home will be taken back by a bank with thousands of homes for sale. They don't to spend the extra money fixing the home up. They just put it up for sale. It might get vandalized by people. I've personally seen mold growing on the walls of homes here in Florida. The power was off and the Hot, Humid Florida Summer is a perfect environment for mold to grow in. This makes the home harder to sell.

Feb 15, 2010 02:56 AM
Lissa Uder
RE/MAX Next Generation, LLC - Lebanon, MO
Your Lebanon MO Real Estate Agent

I certainly understand your frustration, but it is not the BPO agent that dictates the policy or lack thereof of the goverment or lenders.

The BPO agent simply completes an "opinion" of value based on the request we received. Whether it be fair market value, 90-120 day sale, or 30 day quick sale. We have no control over the request either. and most of the time, have no idea why the BPO was ordered to begin with. Would it be fair of us to submit a lower value just in case it is for a short sale when in fact the homeowner is trying to refinance?

Feb 15, 2010 03:51 AM
Lorraine or Loretta Kratz
Crescent Moon Realty, Inc. & Land N Sea Auctions. - San Marcos, CA
Certified Negotiation Consultants

I am so glad that I live in California. BPO'sare now regulated by the Department of Real Estate and fines and severe penalties can be incurred. So this has stemmed the tide of over priced BPO's.

Feb 27, 2010 10:22 PM
Norma Crouse
HER Realtors - Pataskala, OH
Norma Crouse

One reason may be because if they don't give them a high BPO they will not get anymore BPO's from that company.  I know that sounds bad, but some BPO companies will do that.  I think it's bad that appraisers have told banks that properties were worth huge amounts that they are not and never will be worth just because the person has good credit and now we have a huge mess on our hands!!  I still have people say well my property appraised for this amount, so they do not understand why they can't sell it for anywhere near that.  So sad!

Mar 20, 2010 09:49 AM