Short Sales: A Quick Lesson (notes)

Real Estate Agent with TNG Real Estate Consultants

1)  VERY important that your Realtor requests Bank of America (or whatever bank they are dealing with) to include the following language in writing, "This will be considered a debt settled in full.  No further deficiencies will be pursued."

2)  The way to find out how many months someone is past due is to divide the total amount owed by their monthly payment.  Bank of America is not postponing foreclosures anymore if borrower is 12 months past due or more.

3)  One way to learn more about short sales is to go to Fannie Mae's website and click on "Know Your Options."

4) IN a short sale, cash is irrelevant, the investor is looking for the highest net.

5)  Private Mortgage Insurance (PMI).  PMI is used by banks (investors) to secure their debt to help recoup in case a borrower stops making payments (defaults).  Most banks or investors will require 20% downpayment or more in order for the borrow to avoid paying PMI.  Mortgage insurance companies factor into short sales.  They can also be creditors who want to be paid back.  Their philosophy is simple:  they get a premium, small percentage of the principle to insure against a loss.

6)  You can have FOUR parties in a short sale:  1) the investor on the 1st, 2) the investor on the 2nd, 3) the private mortgage company on the 1st, 4) the private mortgage company on the 2nd.  You can have MORE if there are HELOCS.    You can see how this gets complicated...

7)  The investors / banks will sometimes settle with the borrower on a short sale with a) CASH CONTRIBUTION, or b) PROMISSORY NOTE.  A question to ask yourself is:  What am I willing to do to sell this house and get out from under this debilitating debt?  Are you willing to pay the bank out of pocket a few thousand bucks to make it all go away or sign a promissory note that says you will pay back the debt over a period of time for much less than your monthly payments now?

8)  Let's say the bank counters requiring a $12,000 cash contribution from you.  Your Realtor can counter with a promissory note.  That note is usually 0% interest to be paid back from anywhere from 2 to 20 years.  We've heard payments as low as $80 / month.  The loan is unsecured, meaning that if you were to file for bankruptcy, the debt would be wiped out.

9)  Bank of America has $2.2 Trillion in loans out there...they own only 10% of their loans.  They acquire the loans, package the loans and sell them to 3rd party investors.  The investor is the one who really truly owns most or all of your home.  So, there are two types of loans with Bank of America - delegated (where they actually own the note) and non-delegated (Investor-owned loan).  BofA cannot make any decisions on non-delegated loans.  The loss mitigation department will contact the Investor(s) who will then make the decisions.

10)  When an agent gets a counter from the bank, they are trying to fit the short sale into a box of requirements for that particular Investor.  The negotiator has done this enough times to know the basic requirements of each Investor.

11)  Home Equity Lines of Credit.  (HELOCs)   With HELOCs, the bank can pursue for the deficiency because the HELOC is an unsecured debt.  

12)  If someone has filed for bankruptcy, the Realtor must get a reconveyance deed from the bank / lender / investor.  This will take about 30 to 60 days to get.

13)  The stats are that only 18% of short sales close with the first buyer.  The buyer will often walk away when they get tired of waiting or find something "better" while they are waiting.  It is extremely common to have the first and second buyers walk.  A good agent will close 35% to 60% of the time with the first buyer because they set the expectations early on.

14)  IRS liens can be part of the quagmire.  It takes approx. 40 days to have an IRS lien removed, so the Realtor should start the process to have that removed the second they receive an offer.  This is another reason why it is critical to have a preliminary title report ordered by a title company as soon as a Realtor takes a short sale listing to see all the problems they are dealing with.  There can be HOA liens and mechanic's liens and private liens on the property as well.

15)  BEST BANKS to deal with ------>  Wachovia and Wells Fargo have a very streamlined process for their short sales and seem to close the quickest.

16)  The # for the short sale concierge at Bank of America is 866.880.1232  First question is:  Will the borrower's loan qualify for the HAFA program.  BofA as a whole cooperates with HAFA but the particular Investor who owns the loan may not.

17)  HAFA can be good since it ensures there will be no cash contribution from borrower and no pursuit of deficiency against the borrower but ALL parties must participate.  Some Mortgage Insurance companies refuse to participate.

18)   The average loss to bank / investor on a short sale in CAlifornia is $200,000. 

19)  Short sales are NOT ALWAYS great deals.  The bank is trying to recoup their loss and will sometimes fight to make sure the property is sold at the highest possible price.

20)  Your mom or dad, sister, aunt or uncle CANNOT buy the home when it is a short sale.  Arms length transactions are a must.  #1 cause of fraud with home sales.

21)  Be careful of the scam where someone will say, "You deed the property to me, your credit will stop being affected.  Lease the property back from me, and then I'll sell it back to you later for a good price." 

22)  NO ONE can accept up front fees for short sales.  It is fraud.

23)  Be careful, you cannot have the buyer pay $30,000 outside of escrow for the furniture as a way to get the under water borrower some cash.  This also is fraud.

24)  BPOs (Broker Price Opinions) are on the way out and the banks are moving toward using appraisals only.  Valuations are good for about 90 days.

25)  HELOCs are treated same as a credit card debt - unsecured debt.  They are often charged off and sold to a collection company. 



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Scott Hoen - Carson City, NV
VP, Marketing Systems & Sales Tech, 714-270-9607

Nice post and very thorough -- we implemented a specific customer service department for short sales as they will be with us unfortunately for years.

Aug 27, 2011 05:45 AM #1
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