In the last year and one-half of handling short sales for homeowners and representing buyers in short sales in Hawaii, I think I've learned a lot. Short sales and foreclosures are not as numerous here in Hawaii and hit us a bit later, but we are still seeing increasing numbers of short sales and REOs listed in the Oahu MLS. And though other people's own short sale best practices may vary, these have worked well for me ... and also, not following all of these has not worked out quite so well for some other agents I have been involved in short sale transactions with (or otherwise know), so I thought I'd pass these on.
Generally, I have broken my Top 10 Short Sale Best Practices into three categories: Working with the Seller & Property, Working with the Buyer and Working with the Lender.
WORKING WITH YOUR SELLER & THE PROPERTY:
PART ONE: KNOW YOUR LOAN
Find Out About Your Seller's Loan(s) and Other Liens. This seems basic, but amazingly, seems often to be overlooked until the end, when it may be too late and/or wrong information has been relied upon.
- How many loans does the Seller have? Who are they with? Have they been sold? Check and see which entity is name on the recorded mortgage or deed of trust. Does in match the name on the notice of intent to foreclose (if there is one)? If not, is there an assignment of the mortgage or deed of trust recorded? Only the original entity of record or another via legitimate assignment on the mortgage or deed of trust can foreclose on a homeowner. (This topic is complicated, so I won't say any more. Consult legal counsel, if you have questions. But you should know, in any event, whose names are on the recorded document(s) and who is foreclosing.)
- Do the loan(s) have mortgage insurance on them? If so, you will need sign off from one or more mortgage insurers, in addition to the lender(s) and the investor(s). This can be tricky and they are not easy even for the lender to work with.
- Who are the investors/loan servicing companies? Certain investors may be easier to work with. Other investors will not discount your commission. Investors have their own internal guidleines on working with short sales and they all vary. You will want to learn about your investor by doing research online and querying the experiences of Active Rain folks, as well.
- Who is the foreclosure law firm/company and who is the attorney in charge? You may end up calling these people on a regular basis if the property you are listing is pre-foreclosure.
- Are there junior liens on the property? These will have to be paid or settled prior to close. You will want to start working on this right away, even before you have a Buyer. If you can't get these removed or settled, you won't be able to do the short sale unless the Lender (Seller) or Buyer will kick in $$ for the liens. Your leverage with the junior lien holders is that they will get nothing if there is a foreclosure, except perhaps as to tax liens. You will want to disclose the liens to prospective Buyers and maybe they will pay these off as part of the sale transaction. And make sure you stay up to date on the existence of junior liens (part of staying in touch with your Seller, see Part Three). The Sellers' financial problems may go beyond their mortage and judgment, tax and other liens against the home may appear later, as the short sale progresses, even if not there at the outset.
And most importantly....
- What actually is owed on the loans?? Is it truly a short sale? How much do you need to make it NOT a SHORT SALE? (a) make copies of the last mortgage statements of the Seller and (b) request or have the Seller request a loan payoff amount from both Lenders. Ask for the daily rate of interest and the amount of sttorneys fees the Seller can expect. You may to do this a few times during a long transaction, as amounts will change, over time, as interest, penalties and attorneys fees continue to be added. You want to make sure that you really know what is owed and almost exactly how short your short sale really is.
Here are two real life examples of why this is important:
EXAMPLE ONE: I listed a home as a short sale. It was listed by another realtor for about a year, initially, at price high enough to cover the amount owed. They followed the market down and the home ended as a short sale by $31K, as to the one and only only offer they received. It was approved by the Bank, but it turned out that Buyer was not able to qualify. The Seller let her other realtor go (they never got along), waited around a while, and then came to me only six weeks away from her foreclosure date. I listed the home at the first short offer price, and in two weeks got multiple offers.
Because I knew how pretty closely how much was owed on the loan balance, plus daily interest and attorneys fees, I knew how much they needed to recieve to make it NOT a short sale. I communicated this to one of the willing buyers and they came in with an offer high enough to make the sale NOT a short sale. Result: No short sale. Sale in two weeks with multiple offers because list price was great. 30-day Closing, so no foreclosure. Accepted offer was over asking price and no problems with appraisal. Happy ending. Had I not known almost exactly how short the sale was, I could not have gotten an offer designed to cover the whole amount. (And in case you were wondering, I spent money on advertising, took all new photos, did all showings personally, gave Seller advise on staging, decluttering, etc., all the things I would do with a regular sale, even though it was a risk that it would not sell and would foreclose. This is the main reason why we were able to succeed. See Part Two.)
EXAMPLE TWO: I represented a Buyer on a home that was a short sale with two mortgages. Seller's agent communicated that she already had a Bank-approved offer price. My Buyer offered at that price. Seller's agent, a month later, informed us that with the Buyer-offered price, Lender One said it was not a short sale. So short sale only as to Lender Two. She informed us Lender Two had approved and sent written approval. We went through a month of escrow, inspections, etc. and ready to close. Foreclosure date with Lender One coming. Seller's agent tells me "no problem," because Lender One is paid in full, will extend. Seller's agent goes to CRS Convention in Las Vegas week of foreclosure. Lender One does not grant extension because taken out of Short Sale status. Seller Agent does not want to miss even 1 second of convention (she's having fun and it cost a lot to be there!), so "requests" that I (BUYER's agent) handle the extension, working with HER client and her client's lender. I cannot refuse for the sake of my client(and it sounds like so much fun for me), so I handle, spend 15 hrs and calling in every favor I could with the Lender, and successfully get it extended the day before foreclosure. Everyone breathes sigh of relief, except me. Why is that? ....
Why? Because in working with Seller's Agent's client and the Lender to postpone the forclosure, I had to request an updated copy of Seller's HUD (in Hawaii, Buyers and Sellers HUD are separate). When I saw the HUD I saw that there was still $22K short. I asked Seller if she was bringing cash to the table. Of course not! This was still a short sale as to Lender One!! Seller's Agent had not bothered to get correct figures for how much was owed on loan. Agent forgot to account for interest, penalties and attorneys fees that were added to the loan. (So did the Bank's negotiator, but why am I not suprised at that.) Seller's agent used the figure from the Preliminary Report that only showed the original loan amount. She never had Seller order a pay off amount and by the time she requested one from escrow it was too late. Then the sale was kicked out of the short sale queue and put in again as a short sale for approval. Fortunately, I had some contact with the lender that I could provide to the Seller's agent to help get things expidited. After two extensions and having to go back to the second lender twice, we finally closed on this.
Two great examples for why knowing exactly or close to exactly what is owed is critical!
Read more in Part Two of this series of My Top 10 Best Practices for Short Sale Success.
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