Short Sale Tip of The Week 7-1-09

Posted on 30. Jun, 2009 by ctlms in Short Sale, foreclosure

Why the BPO is the most important part of a short sale!

So you have had a short sale listing for a while and you finally have an offer.  The offer has been accepted by the sellers and all the required documents have been gathered from them.  You, or your professional negotiator, have created the estimated HUD-1.  The short sale package been professionally assembled with a well thought out offer sheet and other additional documents included.  And it has all been faxed to the proper location at the lender(s).  Now you just sit back and wait for the acceptance....Right?

Wrong!

The next step for the Real Estate agent is the crucial BPO.  The banks evaluation of the current value of the property.

A BPO is a Brokers Price Opinion.  Similar to a CMA but more detailed and more closely resembles an Appraisal.  As a matter of fact Government loans such as FHA and VA will order an actual appraisal.  But most lenders are cheap and order a BPO for about $150.

The problem with BPOs is that they are often done by real estate agents from outside the area.  Also the bank sets the required guidelines for the BPO and they can be unrealistically restrictive.  Such as requiring the value of the property to fall within the range of the comps used.  Which would mean if the comps ranged from $150,000 to $165,000 the value would need to come in within that range, even if the roof was missing or there were other issues that would reduce the value of the property.

Also BPO agents are paid very little to do these valuations and cannot justify spending much time on them.  That is where your work comes into play.

You should always meet the BPO agent at the property. Do not just give them the lock box code and let them go on their own.  Meet them with a copy of the offer, any and all comps that justify that offer, a list of needed repairs and any market statistics that demonstrate the current market conditions.  Also print out the listing history showing all the price drops and any showing feedback that stated the property was in bad condition or the price was too high.

In todays declining market, a BPO that uses 6 month old comps will certainly come in higher than the offer.  Showing the agent market stats, for instance,  that show a 5% drop in the last 6 months will help to avoid that.  Plus if they like your comps, they may use them rather than search out their own.

There is nothing more important though, than rapport.  If the BPO agent likes you, they are more likely to do what they can to help you get what you need.   Telling them the plight of the homeowner in distress can't hurt either.  Also be sure they see any defects in the property and preferably take a photo of it.

Lastly, always ask the BPO agent if they think the BPO will come in around the offer.  If we know what the BPO is, we can estimate what the bank will want to net from the offer.  Then a day or so later, call the agent up and ask if they have everything they need for the BPO or have any questions.  Then ask what the BPO came in at.

This brings us to why the BPO is so important.  All the investors behind loans, such as FHA, VA Fannie Mae, Freddie Mac, etc, have discounting guidelines.  These guidelines determine what the bank will want to net as a percentage of the BPO.  That's right, the BPO is what is important at this point, not the amount owed.  For instance VA will accept 88 percent of the BPO as the net to them from an offer.  If the closing cost are say 7% of the offer, that leave 5% to play with.  So as long as the offer is not less than 5% below the BPO the offer would fall within the guidelines and most likely be accepted as-is with little negotiation.  If it were lower than that, or the BPO came in higher than it should, it drastically reduces the likelihood of a successful short sale approval.

So the big take away here is, do not underestimate the importance of the BPO.  It is crucial and requires your utmost attention and due diligence to avoid an unrealistically high BPO that will surely kill your deal.  As we all know, a dead deal pays no commissions.

That's a rap for this week.  See you all here next week for my next Short Sale Tip of The Week.

Subscribe to this blog via RSS for instant updates.

As always Visit the Ask The Expert Page to leave your questions or contact me directly if you need immediate assistance at sean@ctlms.com or visitwww.CTLMS.com

Short Sale Tip of The Week 6-24-09

Posted on 23. Jun, 2009 by ctlms in Short Sale, foreclosure

What are the consequences of a short sale? Part 3

This week I am going to finish up the discussion on short sale consequences for a homeowner that must sell via a short sale.  This weeks topic is the deficiency balance.

I posted on this topic in my tip of the week on 5-13-09 so I will just sum up the topic here.

When a short sale is approved as a release of lien only, the sellers are still open to the possibility of the lender trying to collect the balance in the future.  This is NOT an acceptable short sale approval letter.  It leaves the sellers open to any and all collection options that are available to the lender at any time in the future, even after they get back on their feet financially.

These approval letters should be rejected and negotiated to a pre-arranged promissory note.  We always try to negotiate those notes for much less than the deficiency balance and at very low or no interest.  The difference between the promissory note and the deficiency balanced is forgiven and the sellers would receive a 1099-C for that amount.  We discussed the promissory notes extensively in tip of the week on 5-13-09.

As I have stated before, a satisfaction of the note is the best approval.  However that is not always an achievable outcome and the promissory note is the next best thing.  A well negotiated promissory note is by far more favorable to the sellers than an open ended ability by the lender to try to collect on the entire deficiency.  The lender would often sell the right to collect that debt to a professional collection agency that will relentlessly pursue the sellers.

That raps up this mini series on short sale consequences.  See you all here next week for my next Short Sale Tip of The Week.

Subscribe to this blog via RSS for instant updates.

As always Visit the Ask The Expert Page to leave your questions or contact me directly if you need immediate assistance at sean@ctlms.com or visit www.CTLMS.com