By Stephanie Sievers | Associate Editor
Is your short sale bogged down by paperwork as you sort through layers of lien holders and fill out the forms needed to gain final approval for a transaction?
The times may be changing for transactions involving distressed properties as more banks become open to short sales and federal and lender changes are put in place to make them more attractive and efficient.
The result: REALTORS® could finally see short sales get a little shorter, experts say.
A positive trend is that more lenders are realizing that a short sale is better for everyone rather than allowing the property to go into foreclosure, said Lynn Madison, an Illinois REALTOR® and instructor who frequently teaches on the subject. She co-wrote the Short Sale and Foreclosures Resource (SFR) certification course for the National Association of REALTORS®.
In the first quarter of 2012, short sales increased 19.7 percent compared to a year earlier, according to the latest U.S. Office of the Comptroller of the Currency Mortgage Metrics Report.
And in a report earlier this year, RealtyTrac projected a wave of short sales through 2012 due in part to lenders viewing them more favorably and sellers using aggressive pricing to move the properties more quickly.
Since short sales aren’t going away anytime soon, here are 13 ways REALTORS® can make the transactions go more smoothly.
Rules are changing and more could be on the way.
Tighter approval timelines went into place for Fannie Mae and Freddie Mac loans in mid-June requiring servicers of those loans to provide a response within 30 days of receiving a short sale offer and make a final decision within 60 days.
The new timelines apply to the Home Affordable Foreclosure Alternatives (HAFA) program as well as Fannie and Freddie.
HAFA has also extended its short sale program to investment properties as well as owner-occupied homes.
In November, additional Fannie and Freddie guidelines will go into effect aimed at streamlining the process and expanding eligibility.
Another new federal policy change allows underwater military homeowners with Fannie and Freddie loans to qualify for short sale assistance and avoid foreclosure if they have received new orders and must move quickly.
The changes extend beyond Fannie and Freddie. As part of a national mortgage settlement, five of the nation’s biggest banks are also required to adhere to a streamlined short sale timeline, similar to that found under HAFA guidelines.
REALTOR® Bert Gor, an agent with RE/MAX Professionals Select in Naperville said it is too soon to know how much of an impact these changes will have.
Short sales can be complicated and riddled with “what-ifs” that he said he worries could still slow down the process. Delays could include questions over how many loans the seller has, the type of loans involved and whether the seller has mortgage insurance.
One of the reasons short sales can become so complicated is because there are so many players wanting a piece of the transaction. There might be one or more investors who own the loan, the servicer representing the lender or investor and a number of subordinate, or junior lien holders with a stake in the property.
Because those subordinate lien holders can delay short sale approvals, this summer NAR threw its support behind proposed federal legislation called “The Fast Help for Homeowners Act.” This legislation seeks to speed up the short sale process by requiring secondary lien holders to respond to a short sale agreement within 45 days.
Dennis Bordyn of Bordyn Law Offices in Downers Grove, says a trend he is seeing is junior lien holders asking for an additional cash contribution from the buyer before they will release their lien on a short sale. A junior lien holder who might be getting a few thousand dollars out of the short sale, will now also ask for the buyers, brokers and sellers to pitch in from $3,000 to $4,000 or more.
“They are using the last leverage they have to get something out of the deal,” Bordyn said.
If there is one thing that agents need to get right in the short sale transaction, it is completing the short sale paperwork correctly, says REALTOR® Maggie Antillon-Mathews, broker-owner of M.A.G. Realty in Chicago, who has extensive experience negotiating short sales.
She sees short sales moving a little faster, but many short sale packages submitted by agents documenting why the seller should qualify fall short. Provide exactly the documentation the lenders ask for, even if it seems counterintuitive, she advises. An example: Lenders want copies of your seller’s bank statements, even the pages that might be blank. If you don’t send them all the pages, your package is flagged as incomplete.
“Short sales aren’t rocket science. Lenders are so overwhelmed that when they receive incomplete packages, that file is going to go to the bottom of the pile,” Antillon-Mathews said.
Lenders lay out in detail what they want in the packages. Bank of America uses the Equator online short sale processing system and Chase is expected to follow suit by the end of the year. She foresees it becoming the industry standard so more agents should become familiar with how to use it.
Antillon-Mathews said it is better to err on the side of more information rather than less. Find out exactly what a lender wants and then go above and beyond. If one lender incorporates an additional document into their package, she will incorporate it into every package.
There are a variety of incentives and relocation fees available aimed at encouraging sellers and lenders to go ahead with a short sale, Antillon-Mathews said. Do your homework and know what might be available.
HAFA offers up to $3,000 in relocation incentives to homeowners, $1,500 in incentives to servicers and has raised the $6,000 cap that can go to secondary lien holders up to $8,500. More big banks are also offering homeowners short sale incentives including Chase and Citibank. Bank of America now offers between $2,500 to $30,000 in relocation assistance to sellers.
Consumers are inundated with stories about the negative results of falling behind on a mortgage and believe that their only option is foreclosure. REALTORS® need to do a better job sharing their short sale successes, Gor said.
“Homeowners do not understand what the timelines really are and they think that when the banks serve their summons that it’s game over,” he said. “People don’t realize the gross consequence of walking away from a home.”
Gor sends mailings to homeowners who have had pre-foreclosure actions filed against them. He estimates that out of every 100 homeowners that he solicits, as many as 10 to 15 percent have already abandoned their homes. His goal is to make more owners aware that they have short sale as an option.
With more than 200 successful short sales under his belt, Gor said he has gotten choosier about the sellers he works with and passes on people who don’t seem committed to making it work.
“Now I really screen homeowners to make sure that not only does the homeowner qualify for a short sale but also that the homeowner really wants the short sale. It has to be really important to them,” he said. “Not every seller is a good candidate anymore.”
Gor has what he calls the “90 Percent Rule.” If he is not 90 precent confident that the homeowner will actually follow through with the paperwork and other things they need to do to help make the short sale a success, then Gor will not work with them. Gor advises REALTORS® to ask homeowners outright how important a short sale is to them.
There is a push to get short sales cleared quickly but Bordyn said a fast sale is not always the best thing for a seller if it means selling for a fraction of the price they could have gotten. It also makes sense to get the highest earnest money you can to ensure that the prospective buyer is serious.
“A short sale is just like any other real estate transaction,” Bordyn said. “Your goal in representing the seller is to get the best possible price from the best qualified buyer.”
Everyone is hoping efforts to streamline the short sale process will make a difference, but that doesn’t absolve REALTORS® from making sure they take care of everything they need to on their side, says Lynn Madison.
Too often agents are waiting until they get a buyer lined up only to find out too late that there are other liens on the property they don’t have time to resolve.
That seems obvious, right? But agents are still taking short sale listings without first making sure that the homeowner qualifies. Madison recommends that agents use Fannie Mae’s Uniform Borrower Assistance Form 710 with every seller. The third page of the document spells out what qualifies as a hardship. Find the form at www.efanniemae.com/sf/formsdocs/forms/710.jsp.
There must be something in the approval letter that expressly states the bank and the investor who owns the loan will not pursue the deficiency, Madison said. Sellers should be directed to their attorney.
A HUD-1 Settlement Statement should be sent in.
Lenders lay out in detail what they require in a short sale package. Make sure you give them what they want, not what you think they need, Madison said.
Take a course whether it be the Short Sale and Foreclosures Resource (SFR) certification course from NAR or the Certified Distressed Property Expert (CDPE). Not only will you learn more about short sales, but banks seem more favorable to short sale packages from trained agents and are using those agents for more referrals, Madison said.