Attn: Short Sale Listing Agents...READ YOUR LENDER APPROVAL LETTERS BEFORE CALLING ME WITH THE "GREAT NEWS"!!

By
Real Estate Broker/Owner with Summit Home Consultants

Attn:  Short Sale Listing Agents...READ YOUR LENDER APPROVAL LETTERS BEFORE CALLING ME WITH THE "GREAT NEWS"!

I'm representing a Phoenix short sale buyer, and today (45 minutes before our signing appointment at title), I finally received the final HUD via email.  Upon examining it, I noticed that that my buyer was being asked to come up with $4,700 more to the closing table than we anticipated.  Uh oh!

Upon further examination, I noticed that the 3% seller concession that was asked for in our fully executed contract wasn't on the HUD (which amounts to about $4,700).  About 80% of my business is that of a Phoenix short sale listing agent. The other 20% revolves around helping buyers find a home.  stress

As someone who lists and closes a ton of Phoenix short sales, the first thing that came to my mind was "The listing agent didn't read the lender approval letter before excitedly calling me on November 2nd, telling me the short sale was approved. Great!"

Unfortunately, my "hunch" was correct.  Upon receiving the lender approval, the agent made a critical mistake... She didn't compare the lender approval to the Preliminary HUD.  She assumed that they had approved the short sale offer as it was written.  HUGE MISTAKE!

The sad thing is that this particular listing agent has a pretty good track record of listing/closing short sales, and was an absolute joy to work with.  Her biggest mistake was hiring a certain law firm to negotiate her short sale.  On 4 different occasions, I emailed the agent, asking her for a copy of the approval letter.  The law firm, citing "privacy issues for the borrower", refused to give me a copy.  So, in essence, the law firm told the listing agent that the short sale was approved, and she believed them.  Taking into consideration the fact that the listing agent seemed to have a relatively high level of competence when it comes to short sales, I believed her.  My mistake.

So, the listing agent feels horrible about the mistake.  My client, a single woman who had plans on having family/friends over for Christmas in her "new" house, is devastated (and I feel terrible for her).

So, the agent had her husband call me today (who is also a licensed Realtor®).  Now, mind you, the listing agent is getting a 3.5% commission and I'm getting 2.5%(which I have no problem with, as I know what listing a short sale entails in terms of work).  Anyway, he told me that his wife would be willing to give up 1% of her commission, and was wondering if I would contribute.  Hell No!  Next Question... Would your buyer's lender be willing to contribute.  My response, "Hell no, you call him and ask him".  So, now he's going to the title company to see if they will "help out".

As it stands now, my buyer is sticking to what she has agreed to (she has already agreed to a counter from the lender that raised the price $3,000).  The home was put into escrow in August, and values have dropped since then.  My advice to her was, "Why should anyone over-pay for a home in this Phoenix short sale market?"

Obviously, she agreed.  She's very distraught and upset (and who could blame her), but she is a woman of principles. You screw up, you pay.

I think this is a valuable lesson for all short sale buyer agents out there... DEMAND A COPY OF THE LENDER APPROVAL LETTER AND A COPY OF THE PRELIMINARY HUD!  Even if the listing agent cites "privacy issues", ask them to cross anything out that pertains to confidential information (i.e. account numbers).

Another day in the world of the Wild West Phoenix short sale Realtor®.  The only saving grace for us today was getting a foreclosure auction postponed 25 minutes before the auction. :)

Until next time...

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Bob Hertzog

Summit Home Consultants

Find Your Phoenix Short Sale Realtor

Copyright © By Bob Hertzog 2010 *Attn:  Short Sale Listing Agents...READ YOUR LENDER APPROVAL LETTERS BEFORE CALLING ME WITH THE "GREAT NEWS"!*

 

 

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Rainmaker
1,142,210
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Hi Gabe. Sorry to keep picking on you but it is important that agents understand this. You stated:

"...because it is the investor and/or pmi who determines who gets what and how much."

That is not a correct statement. Our listing agreement with the seller determines how much we get paid and how much of a co-broke we are offering selling agents. The listing agreement is between the seller and the broker. The lender/investor/sevicer/MI company (let's call them lender for simplicities sake) have ZERO say so in this agreement.

Based on contract law and and anti trust laws these entities CANNOT dictate how much I charge for my services. Commission is 100% between the seller and their broker.

This is a fact that agents need to understand.

Now having said that, the lender, can dictate how much of the commission the are willing to accept in their loss. Their loss is the portion of the commission that they will allow to be paid out of the proceeds of the sale. This does not release our seller from paying us as per the term of our listing agreement. We may choose to accept this as full compensation but it is our choice NOT the lenders. 

The seller can pay us additional compensation from their pocket NOT the lenders pocket. This can show up as a POC (paid outside of closing) on the HUD. They can also sign a note for the commission owed and pay it off over time. They can at time of listing. The buyer can pay a portion of the commission on the HUD. There are many ways to get paid.

OR...we can choose to be at the mercy of the lender. Personally I choose to control my own buisness. I do not bend over for lenders just because they say this is how we are to do things.

I hope this helps.

 

 

 

Dec 18, 2010 01:35 AM #66
Rainmaker
1,142,210
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Bob. Sorry if I'm hijacking your post. This stuff is really important. I think I'll go ahead and write an article about this. Thanks

Dec 18, 2010 01:37 AM #67
Rainer
230,783
Bob Hertzog
Summit Home Consultants - Phoenix, AZ
Designated Broker

BB, not hijacking my post at all.  The beauty of AR is drawing on the experience of it's members, and comments are always welcome on my posts.  As you stated, this stuff is really important, and we don't want readers getting false or misleading information.

As far as this issue is concerned, not to beat a dead horse, but lenders only care about their "net" in the deal.  They can and will try to lower the total commission paid in some cases, but they could care less if one agent gets more than the other.  Period, end of story.

Now, if Gabe or anyone else has something in writing from a lender/investor/servicer that states this, feel free to share it with the group.  Lenders are constantly changing policies, and we all need to keep abreast of those changes.

 

Dec 18, 2010 03:49 AM #68
Rainer
11,110
Gabe - Loss Mitigation Analyst -
Loss Mitigation Services - Aventura, FL

Bryant don't worry about it, I have dealt with realtors/lawyers from coast to coast many times during negotiations so you can pick my brains anytime. (Don't claim to have all the answers but I do consult with various investors/pmi though)

1. Investors = Fannie Mae, Freddie Mac, FHA, VA etc.

2. Lenders (loan servicers, banks) =  Citibank, Bank of America, Wells Fargo etc.

3. PMI companies = MGIC, United Guaranty, PMI Co. TRIAD etc

4. Negotiators = Bank Representatives who will negotiate/represent short sales on behalf of the investor/pmi

The investors are the "sole owner" of the mortgage note that your sellers may owe money on for their property; the lenders are the ones servicing the loans (short sale, modifications deed in lieu etc); now if the mortgage note carries an insurance then the PMI will step in and decide along with the investor the outcome of the short sale which is all communicated via one person "the negotiator".

Under a conventional real estate transaction you are mandated by your state plus board of realtor on how to conduct your business affairs with the public. This topic which we're speaking of right now is not a typical conventional sale but a pre-foreclosure sale (short sale) which is governed by federal laws and guidelines that all lenders must adhere to regardless of what your listing contract stipulates for additional payments.

The investor's guidelines for short sale were set in place to protect the borrowers (homeowners) and themselves from greedy realtors/lawyers who commands high commissions and fees that would hinder the sale; the nature of this transaction is to mitigate the losses for the investors & not for realtors/lawyers to devour and enrich themselves over the carcasses.

Since this is a short sale there are specific guidelines that are to be followed and anyone during/after the course of the transaction who willfully commits fraud will cause the short sale to be rescinded. You stated a legal clause from the investor's regulation books and I believe you misunderstood the last sentence which is of critical importance.

"Servicers are reminded that they must continue to obtain any approvals that may be required by interested third parties in connection with preforeclosure sales."

The 3rd parties are Private mortgage insurance companies & second lien holders who may still seek to reduce commissions & they are not subject to this mandate stipulated by Fannie Mae only the servicers are.

The seller/buyer is not allowed to pay the realtor anything over and above what the investor/pmi/lien holder allows on the HUD because the commissions are coming directly from the investor to the realtor, the seller/buyer doesn't have a say in this matter.

Realtors are not to receive anymore (POC) than what it's allowed by the investor nor try to extortion a seller/buyer/agent for more $$$ in order to close the deal; this has happened at various times and these realtors who commit such practices will be held liable at the end.

Lenders do care about the NET but it's the Investor who cares about the NET and that you really abide by their guidelines. The investor retains the right to rescind a short sale even after closing for any irregularities.

The investors have thousands of loans to review per day so I'm not surprised at all that some do fall through the cracks but those that are audited will be addressed for compliance.

I hope this help because at the end many realtors/law firms who have participated in these short sales will be prosecuted for not abiding by the rules.

Dec 18, 2010 04:55 PM #69
Rainmaker
1,142,210
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Gabe. All of that is well and good but it doesn't address my last post. The fact is I CAN charge my seller more than the investor will allow. AND I can make more than 3% on the HUD (there is no 50/50 split rule). You have yet to show me anything that contradicts this. Also, there is nothing unethical or illegal about this.

And it is certainly not greedy or fraudulent.

All I ask is that if there is a guideline, rule, law or anythng else that is different from what I'm stating then just post it with a link. That should be easy enough. If not then it is just heresay and really has no baring on this discussion.

 

Dec 19, 2010 05:26 AM #70
Rainer
11,110
Gabe - Loss Mitigation Analyst -
Loss Mitigation Services - Aventura, FL

I think my post addressed it very well, I think that you have your own opinion on how the preforeclosure sales should be handled by the investor and pmi at this point.

I'm merely informing you on the rules of the game; whether the servicers are choosing to follow the letter of the law or not is their business but rest assure they will be audited and penalized if found not in compliance.

You are disputing and rebutting the information I have provided which comes from the source but you seem more interested in winning an argument than informing yourself. I'm not here to argue with you or anyone in this forum, if you say that this rule of 50/50 commission split does not exist, then fine it doesn't exist; just as an investor/pmi company who's at the mercy of a demanding realtor doesn't exist either.

Nevertheless sooner or later you will find out the truth which may come to you & everyone as a surprise at first but the fact is, that it really wasn't enforced by the servicer who has handled your short sale; which is pretty typical if you do your own research.

Remember this is really about the families (elderly, divorced, unemployed) losing their homes and not about your glorious commissions. Me personally I wouldn't draw too much attention to this issue at a times as this, so many people are hurting out there so bad you have no idea.

Be glad you have a roof over your head and food on the table. Do Enjoy your holidays and stay safe everyone !

Dec 19, 2010 07:06 AM #71
Rainmaker
1,142,210
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

OK we'll just have to agree to disaagree. Have good weekend.

Dec 19, 2010 11:47 AM #72
Ambassador
1,229,706
Melissa Zavala
Broadpoint Properties - Escondido, CA
Broker, Escondido Real Estate, San Diego County

Bob: The key is certainly in the details. I guess what I would ask you (and maybe I did not read the post carefully enough) is what you could have done differently in order to avoid this scenario at the eleventh hour. While the negotiation for this deal fell in the hands of a reputable listing agent, perhaps I would have asked the escrow officer to prepare an estimated HUD immediately upon receipt of the approval letter instead of waiting to view this until the signing appointment. Maybe you did do this and I missed it in your anecdote. Hindsight is always 20/20, as they say.

Speaking of hindsight, I'm glad that I had the foresight to send you that short sale referral earlier in the year. The sellers were thrilled with your services, and I was thrilled to receive the lovely note and surprise in the mail today.

Happy holidays to you and your family.

 

Dec 20, 2010 11:57 AM #73
Rainer
230,783
Bob Hertzog
Summit Home Consultants - Phoenix, AZ
Designated Broker

Hi Melissa,

I thoroughly enjoyed working with your referral clients as well, and I'm always sure to thank those that refer business to me, as referrals is the basis of my business.

As far as this deal goes, you ask some excellent questions that I didn't point out in the original post.  In terms of the HUD, I asked for a copy of it on 8 different occasions via email, and asked for the approval letter 4 different times via email.  Each time, I was told that the law firm that was handling the transaction would not divulge the HUD or the 1st approval letter due to "privacy concerns for the seller".  In this particular case, the HUD was generated by the law firm, not the escrow company.  So, I/we were at the mercy of them.

I was also informed today by the listing agent's broker (listing agent is no longer returning phone calls/emails) that their office did not receive a HUD until 4 days ago.  Unfortunately, at the end of the day, the responsibility lies on the listing agent giving me the information, and not the law firm (she hired them, not me).  It's very unfortunate, as she is a very well-known agent, and has a ton of experience handling short sales.

We'll see how things pan out, but at this point, I'm thinking we're looking for a new home for my buyer, and she is going to get a small-claims lawsuit for the appraisal, inspection, and termite fees.

Thanks for stopping by!

Dec 20, 2010 02:28 PM #74
Rainer
11,110
Gabe - Loss Mitigation Analyst -
Loss Mitigation Services - Aventura, FL

I have additional information to provide regarding realtor's commissions in regards to a short sale and not a conventional one which I believe most agents are probably thinking. There's a huge difference in these kind of transactions and please don't make the mistake thinking that they're the same.

I will continue posting more on this link started by Bryant Tutas

http://activerain.com/blogsview/2027519/if-you-are-going-to-work-short-sales-know-how-to-get-paid-

During short sales the investors/pmi holds the gold therefore they make the rules and if anyone receives additional compensation POC which is not approved by the investor on the HUD1; these individuals will be in hot boiling waters.

Bryant wrote on #70

"The fact is I CAN charge my seller more than the investor will allow."

Any realtor that thinks that can demand additional $$ from their sellers/buyers/anyone (before/during/after) closing are in breach of short sales contract. If the investor or pmi finds out that someone received additional compensation outside of closing, that short sale will be rescinded.

Dec 22, 2010 09:16 PM #75
Rainmaker
1,142,210
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Gabe. The investor doesn't have to find out. It's fully disclosed. I don't work behind closed doors. You assume way too much. READ what I wrote.

Dec 23, 2010 02:06 AM #76
Rainer
11,110
Gabe - Loss Mitigation Analyst -
Loss Mitigation Services - Aventura, FL

Bryant. If you have a POC then it's obvious the investor doesn't know about it because it's out of the investor's control and it could cause a potential lien on the property; at that point there cannot be a definitive closing due to these open risks.

Let's suppose for whatever reason this POC is not executed; that would defeat the whole purpose of the short sale and any deficiency judgement waiver because whoever that POC corresponds to will sue in court to recover this money that it's owed and most likely if a lien is in place it won't be lifted.

The investor needs to know for sure that every party that has a vested interest in the property during the negotiations will participate and release all their liens at closing.

Short sales were designed to transfer a free & clear title of ownership to the next homeowner; that's why everything must be stated on the HUD because that's where everything legally ends, at closing.

Dec 23, 2010 03:28 AM #77
Ambassador
2,875,711
Anna Banana Kruchten - Phoenix Homes Sales
Phoenix Property Shoppe - Phoenix, AZ
603-380-4886

Well Bob - let's get back to your post!  Sorry to hear your buyer got the shaft - what a bummer right before the holiday.  But I'm with her on this one - no deal - stick to the agrement.  I'm sure you'll find her another home and probably less money at this point.  As for the listing agent, I agree, she's got the bottom line on this one, not the attorney.  In my experience attorneys aren't really wanting to deal with all the bs with short sales - for not much money - and hours on the phone waiting and/or getting transfered all over the place.

Good luck to your gal - and you too. I know how much time and energy shorts take.

Dec 23, 2010 10:22 AM #78
Rainer
217,285
Andi Grant
310-508-4354 | FirstTimeHomeBuyerRealEstate.com - Los Angeles, CA
Helping 1st time buyers and home sellers in LA!

VERY interesting reading.  I will check out Bryant's rebuttal post.

I agree with Gabe in that I do believe that charging more than what the investor/bank will allow is not true and correct because they are the ones agreeing to take the hit and paid out commission proceeds must be agreed upon by them in a short sale approval and of course disclosed on the HUD.  At least in Cali.  I'm not sure if that statement wasn't made in the heat of the argument, is determined by state regulations, or there is more to it that I missed in the back-and-forth exchange or on the rebuttal. Speed reading between calls could have made this possible.

In addition to that, Gabe couldn't possibly be saying in this statement "

"...because it is the investor and/or pmi who determines who gets what and how much" that they care about the actual split between agents as long as it is within the % amount they agreed could be paid out of proceeds, total disclosure and it's on the HUD and all parties agreed? I do not recall seeing a counter or revision in a final approval on which side gets what when the investor has agreed to the 4, 5, 6% total being paid out of proceeds.  I've seen all variations in broker splits on MLS when negotiators are involved and it's usually been up to 6%.  Did we ever get the supporting documentation that specifically addresses the split being an issue as long as the total stays within approval? 

 I agree with Bryant and am under the same impression that as long as it is disclosed to all parties in contract, MLS, disclosures, that it is for the most part up to 6% in these types of transactions (Fannies, Freddies, etc) and the initial split is between broker and seller with the final commission total being agreed upon by investor whether or not the agent counters and gets their desired commission or not the final % (not split) say so comes from the investor as it is coming out of their proceeds.   I'm not seeing anywhere in the above posts where Bryant is not disclosing and it appears to be within the 6% and he said it's on the HUD. 

Also, Melissa makes the best preemptive point in stating that as soon as you hear word of "approval" that it's best to immediately ask for the estimated HUD statement (which sounds like you did Bob, but the agent kept stalling). 

 

Dec 27, 2010 11:58 AM #79
Rainer
11,110
Gabe - Loss Mitigation Analyst -
Loss Mitigation Services - Aventura, FL

Hi Andi, the only reason why the investor would be involved in a petty issue as the commission is because many agents had tried to collect 3%+ than their counterpart who probably worked just as hard.

In a case of 6% the split would be 3/3 , in a case of 5% it would be 3/2 or 2.5/2.5; in the past there were agents who tried to collect 4/1 4/2 5/1 etc.  I believe the investor was trying to set up a fair system to accomodate everyone so there won't be any abuse by any of the agents.

I agree that this is a very miniscule issue in light of the entire short sale picture.

Dec 27, 2010 01:15 PM #80
Rainer
194,086
Jeff Payne
The Payne Group at Keller Williams Success Realty - Panama City, FL
Panama City Real Estate

Gabe, when are you going to show us the investor guidelines that show  how the total commission is going to be split.  Still waiting on that.  Just post it already

Dec 30, 2010 07:55 AM #81
Rainer
24,607
Trent Chapman
Keller Williams -New Future Team - San Marcos, CA

@Gabe, I hope you understand what Bryant is saying, because he is 100% correct.  It's irrelevant to us as agents what the "investor's guidelines" say.  All that is relevant is what is written on the approval letter.  Guidelines are made to be tweaked.  Negotiators tell me everyday, "it's our guideline to only allow the second $3K" ...but then magically I talk to Fannie and they approve the $10K I was asking for to get the second to release their lien and liability.  So does this make it illegal or fraudulent because the "internal investor guideline" was not followed?  No, because guidelines aren't set in stone and as long as the approval letter reflects what we agreed to, even when it's outside the guidelines, there is no problem.

If the approval letter states an aggregate commission of 7% is allowed and let's say my brokerage is getting paid 4.5% as agreed upon by my seller (for negotiating a full relaese of liability) and if that is disclosed on the HUD as well, then the "investor guidelines" are irrelevant to us as agents.

Guidelines are for the servicer to adhere to and if they don't, or if they don't enforce them, or if the investor decides to adjust them, there is nothing illegal about an agent getting paid more than 3% as it was not a stipulation or limitation written in the approval letter.  The end. ; )

-Trent

Dec 30, 2010 10:12 AM #82
Rainer
11,110
Gabe - Loss Mitigation Analyst -
Loss Mitigation Services - Aventura, FL

Hey Trent, did you get a chance to visit the link posted in #75 and followed the continuation of this discussion there ?

If you did then let's wait on the rest of the 100,000+ agents who are reading on it and doing their homework to verify everything that was posted is accurate or not.    ok ?

Dec 30, 2010 11:47 AM #83
Rainer
11,110
Gabe - Loss Mitigation Analyst -
Loss Mitigation Services - Aventura, FL

Happy New Years and may God bless everyone and the whole entire family !!!

Dec 31, 2010 06:58 AM #84
Rainer
194,086
Jeff Payne
The Payne Group at Keller Williams Success Realty - Panama City, FL
Panama City Real Estate

@Trent, looks like you stumped Gabe on that one!! Those 100,000 agents?  Fact of the matter is, Trent is spot on, and he did not hide behind a fake name and profile, imagine that!

Jan 03, 2011 04:19 AM #85
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