Loss Mit Services

The Ins and Outs of Bank of America and Equator

Posted on 02. Dec, 2010 by ctlms in Foreclosures, My Blog, News, Real Estate, Short Sale, foreclosure

Some Hate it and others Love it!

Anyone that has dealt with Bank of America this year during a short sale has heard of Equator.com.  In fact some other lenders such as GMAC us this online platform as well.  But Bank of America has fully incorporated this system into their short sale process.  Let's talk about the system and how to use it properly.

Some people I have talked to just Love Equator because it is more hands off and requires fewer phone calls and no faxing to the lenders.  Others Hate it for the same reasons.

I myself just use it to the best of my ability and try my best to avoid it's negatives.

Eqautor.com, formerly REOTrans.com is an online interface used by Bank of America and others to facilitate communication and document collection between the seller's representative and the bank.  The system was designed assuming that the seller's representative who would be communicating with the bank would be their real estate agent.  This created some challenges for anyone that was not a licensed real estate agent to negotiate the short sale, such as an attorney or short sale negotiator.  Recently they have added access for attorney's but there is still no clear way to get an account if you are not an attorney or licensed real estate agent.  Good thing I have that license also.  We have been using Equator since Feb. 2010.

The key feature that many people love about this system is that you can initiate a short sale without calling the bank or faxing anything in.  You just enter in some information about the loan and once the file is opened, you upload your 3rd Party Authorization form into the system to be reviewed.

Once that authorization is accepted, tasks are assigned to you to upload short sale documents and enter the offer information.  You will need to have already prepared an estimated HUD-1 for this and gathered the buyer's name and address along with the contact information for their agent and lender.

There are some fields that are asked for that we usually do not enter the correct information and have never had an issue.  The system asks for the buyers first 5 digits of their social security number.  This is none of their business to start with and that limited information is useless anyway so we just enter 000-00.  Same goes for their birth date.  Just pick a random date.  We also use the area code and 555-5555 for any of the requested phone numbers except that of the buyers lender.  The person processing the short sale on behalf of the seller should be the only point of contact for any requests for information or documentation from the lender.  This avoids delays and confusion down the line.

After the offer is fully submitted a value is ordered and after that value comes back to the lender a counter offer is usually issued.  This is common and is a way for them to see if the buyer will come up any.

After the counter offer phase, and if the offer meets the investor's (who owns the loan) minimum net proceeds the offer is submitted for approval.

If approved the file moves to a closing officer and the short sale approval is issued.

This all sounds pretty simple and straight forward but there are things that can totally blow up your transaction.  All the hype that  Bank of America has put behind this system has lulled many into forgetting that you actually need to know what you are doing.  If you let the lender guide you through the short sale the way THEY want you to do things, you may not be protecting your client fully.

Here are some tips.

1. If possible, use the services of someone who is very familiar with the system and the lender.
2. Fax your authorization into the lender before initiating the short sale on Equator.  Call to verify it is on file and make sure the loan is to be processed through Equator.  FHA and VA loans along with some HELOC loans do not go through Equator.
3. Call Short Sale Customer Support if you aren't getting updates through Equator or responses to requests for updates.
4. Be sure to have everything you will need for the short sale before you initiate on Equator.  Equator tasks have expiration dates and if you fail to complete them in time, the file will be closed automatically.
5. If you know what closing costs the lender never agrees to pay, you can save a lot of time with the offer-counter offer process.

These are just a few tips of the many ins and outs it takes to successfully navigate this system on a regular basis.

Equator can be a great tool for speeding up the short sale process if you know how to use to its best.  We have had short sales approved using it in as little as 3 weeks.  But I have seen many agents get completely frustrated and huge delays caused due to inexperience with the system and the knowledge to work around some of it's challenges.  This is especially true of "unique" transactions where the developers of the system could not have foreseen your issues.

Hope these tips help shed a little light on this system.

Sean Wilder

Owner, Loss Mit Services

Call us with your short sale needs 860-265-3727

Short Sales, When to do the home inspection?

Posted on 20. Oct, 2010 by ctlms in Foreclosures, My Blog, Real Estate, Short Sale

To Inspect Now or Wait Till Short Sale Approval?

That is the question I hear all the time.

So what is the answer?

Well to start, the answer is "It's Negotiable".

In these cases the buyer is going to have a legitimate concern with paying money for a home inspection without knowing that their offer is approved yet. That makes perfect sense. Right?

Well, yes but there is more to look at when deciding this issue.

Let's look at a couple scenarios where the buyer may have wished they had just done their inspection at the beginning.

Scenario 1. Buyer's offer is approved after 60 days (Pretty Quick).  They do their inspection and find deficiencies in the property.  They can't ask for repair credits so they lower their offer on the property.  The new offer is submitted to the lender and the whole process starts all over again.  Most lenders have to at a minimum go back to the investor that owns the loan to approve a reduction in the sales price.  If there is Mortgage Insurance they also must approve and if there are junior liens so do they.  This whole process can easily take 30 to 60 days, especially if a new BPO has to be ordered.

So in this scenario, doing the inspection in the beginning would have saved the buyer as much as 60 days wasted time.  Consider mortgage rate lock expirations as well with that delay.

Scenario 2. Buyer's offer is approved after 60 days.  They do their inspection and find deficiencies that make them decide not to buy the house.

In this scenario, the buyer could have saved 60 days of wasted time by having done the inspection up front.  Plus, consider how many properties would have gone off the market in those 60 days.  How many of those properties might have been "The One" for this buyer.

Doing the inspection in the beginning prevents the buyer from wasting months waiting on short sale approval or re-approval.

Not only that but consider this.  By presenting an offer on the property that may not reflect it's actual value, based on the true condition of the property, you are setting the wrong expectations with the bank.  I have seen it time and time again.  Once the bank has an offer in for say $200,000 they want $200,000.  Even when you show them legitimate evidence that the property is now only worth $180,000, they saw $200,000 and want $200,000.

In my experience it is much more difficult to get the bank to lower the amount they want after they have issued an approval.

On the other hand, if you had the inspection report in hand when the BPO agent or appraiser came out to value the property, it is more likely that that information would be considered when determining the initial value that is sent to the bank.  You would also have already adjusted the sales price to reflect that condition.  So the bank would never have had an expectation of $200,000 to begin with.

In my opinion, spending $400 on a home inspection is cheap insurance against wasting months of your time and possibly never getting the offer approved after adjusting the price later.  Add to the lost time, the possible loss of another property that would have suited your needs, as well or better, that is no longer available because you didn't want to spend $400 on that cheap insurance against these issues.

And if all that doesn't convince you of why doing the inspection up front is in the buyer's best interest, consider this.  Once you do have short sale approval, that approval has an expiration date on it.  So if you find even minor issues with the property, issues that you want to get estimates for before deciding to move forward with the purchase, you have a limited amount of time to get that done, make your decision to move forward and then finish your financing approval and meet the short sale closing deadline.  That puts a lot of pressure on you.  If you knew about those issues at the beginning, you would have the whole short sale approval timeline to arrange for those repairs to be made before you move in.

I believe a home inspection is like insurance against wasted time and potential loss of other properties, and it's cheap insurance.

As I stated earlier, this issue is negotiable.  It is one of those issues that should be taken fully into account by the buyer, and by the seller when considering multiple offers.  It is not in the sellers best interest to waste months with a buyer that may end up backing out after short sale approval, if there is another buyer willing to inspect now.

Sean Wilder

Owner, Loss Mit Services

Call us with your short sale needs 860-265-3727

Short Sale Tip 10-8-10

Posted on 07. Oct, 2010 by ctlms in Foreclosures, My Blog, Real Estate, Short Sale, foreclosure

So What's Up With HAFA?

So with all this HAFA hoopla what is the skinny on this program?  What are positives and the negatives?  Let's delve into the particulars.

What is HAFA?

HAFA stands for Home Affordable Foreclosure Alternative and is a subset of the HAMP program rolled out last year.

So what's the deal, how does it work?

HAFA is supposed to "streamline" the short sale process by standardizing paperwork across lenders and shortening the approval timelines for a short sale.  Notice I said "Supposed to".

HAFA has incentives for the Servicers, Investors and Borrowers to participate.  The Servicers get paid to complete HAFA short sales, the Investors get paid for approving them and the Borrowers get $3,000 at closing for preventing them all from further losses associated with foreclosure.

All sounds good right? Well not quite so good.

First off HAFA has actually slowed down the entire short sale pipeline across almost all lenders.  Citimortgage discloses that HAFA adds about 4 weeks to a short sale.  Bank of America is 2 weeks to forever longer. (These are if not pre-applying)

The reason for the increased timelines is that HAFA allows the borrower to "pre-apply" for a HAFA short sale.  In theory that is great.  The borrower can find out if they qualify for a short sale and the bank will tell them how much they will accept.  Also, During the minimum 120 marketing period the bank will not foreclose.  Sounds Good!

But it isn't, for many reasons.  For the system in general, the negative is that there are now tens of thousands of short sales being reviewed that don't even have offers on them.  This is overwhelming the servicers and making all short sales take longer.

But that is just one negative.  Lets look at the pros and cons of the 2 ways to get a HAFA short sale done.

1. Pre-Apply

If you pre-apply for a HAFA short sale, before there is an offer, the servicer will;

a. Review the sellers financials to determine if they qualify.

b. Order a value and determine how much they are willing to accept for the property.  This can be in the form of a "net to the bank" or an "approved listing price"

c. Issue the Short Sale Agreement (SSA) for the seller and their agent to sign.  This agreement sets the terms of the HAFA program such as;

1. Length of marketing period, not to be less than 120 days

2. Commission approved, can be less than listing agreement and can be less than 6%, Except Fannie and Freddie loans

3. Amount of mortgage payment that must be made during the marketing period, not to exceed 31% of the borrowers GROSS monthly income

4. Deed-In-Lieu language.  This can state that if the borrower does not find a buyer with an offer acceptable by the lender, that at the end of the marketing period the borrower will deed the property back to the bank in a voluntary foreclosure. OUCH!

5. That the borrower will receive a full release of liability for the remaining balance at the closing of a Short Sale or Deed-In-Lieu

6. That the borrower will receive $3,000 at closing of the Short Sale or Deed-In-Lieu

Pros

1. Seller gets full release of liability

2. Seller gets $3,000 at closing

3. Saves time after the SSA is agreed to as the servicer only has to review an offer against the pre-determined approved price.

Cons

1. Commission can be arbitrarily cut below 6%, accept for Fannie and Freddie loans

2. Seller may be required to make a mortgage payment they cannot afford, to qualify for HAFA

3. Seller may have to sign agreement to a Deed-In-Lieu if a buyer cannot be found at the banks approved price.  This is at the beginning of the marketing period.

4. When the BPO is done, there has been limited or no listing history or showing feedback to help determine what the market is NOT willing to pay for the property and no offer to be considered to represent what a buyer from the market IS willing to pay for the property.  This can increase the possibility of the value coming in at a price that the market is not willing to pay and dooming your short sale to failure from the start.

2. Apply for HAFA when you have an offer

If you apply for HAFA short sale, when submitting an offer, the servicer will;

a. Review the sellers financials to determine if they qualify.

b. Order a value and determine how much they are willing to accept for the property.

c. Review the offer for approval based on the investors guidelines and BPO value.

Pros

1. Seller gets full release of liability

2. Seller gets $3,000 at closing

3. Commission cannot be cut below what is agreed to in the listing agreement, not to exceed 6%

4. The BPO agent will have your full marketing history, showing feedback and the offer to consider along with comps when conducting the value estimate.  This reduces the possibility of an inflated value. (but doesn't eliminate it)

Cons

1. The process will be longer for the buyer as the bank has not already determined if the borrower qualifies or what their opinion of value is on the property

2. Freddie Mac does not allow for HAFA applications other than the pre-application process.  So it is important to pre-apply for HAFA if the loan is owned by Freddie Mac

3. Foreclosure is not avoided while marketing the property.  Care should be taken to be sure a foreclosure date is not immanent and pre-apply if it is to buy the seller time.

My Conclusion

In most cases it is advisable to not pre-apply for HAFA in order to avoid the possibility of an inflated BPO, un-affordable mortgage payment for the seller, Possible Deed-in-Lieu language in the SSA, and commission cuts.  Oh, did I mention that during the marketing period you as the agent have to continue to report back to the bank with monthly CMA's and other reports?

In most cases applying once an offer is received is your best shot at avoiding negatives for your seller and yourself and also giving yourself the best shot at actually getting the short sale approved.  But as in all short sales, the buyer expectation on time-frame are crucial.

All that being said...It is the sellers decision on how to proceed and they should be fully informed of the pros and cons of both courses before making that decision.  After that, it is up to all of us to do our best to navigate the pot holes and avoid the negatives whenever possible.

Sean Wilder

Owner, Loss Mit Services

Call us with your short sale needs