Short Sales and Title Searching

Posted on 17. Nov, 2011 by ctlms in Blog, Foreclosures, My Blog, News, Real Estate, Short Sale

Should an agent do a search of the title on a listing?

Alright, so it has been way too long since my last post on short sales.  I totally apologize.

Today's topic is going to be on searching title.

In today's real estate environment there are a few things agents should be doing with their listings to cover their own "assets".  Asking the sellers about their mortgages and any liens is one of these.

You do not want to be the agent that takes the word of a seller that they have plenty of equity to sell without a short sale, only to find out a week before closing that it is not true.  This just doesn't look good for you or your brokerage and it can jeopardize your commission if the deal falls through.

Plus, there are many cases where the seller does not know that they have title issues.  Many people do not realize that small claims and collections judgments as well as medical judgments can be, and often are, attached as judgment liens to their property.

It is very important today that you research the title of your listings before taking the listing.  Many agents already go down to the town hall and pull the field card for the property and allot of agents also get a copy of the deed.  Some Broker's actually require this be in the file, as they should.

So while you're there you should be searching the title for mortgages and any other liens that may be on the property.

Many towns now have their land record index right online where you can search the title and get an index of what documents are recorded for that property.  A simple search like this can quickly reveal documents of concern such as; Judgment Liens, Tax Liens, Water or Sewer Liens, Lis Pendens, etc.

Now I am not saying that every Realtor needs to be a title search expert.  But a simple purchase date forward search of the land records can uncover any possible issues to your transaction closing so that they can be addressed long before the 11th hour before closing.

In the case of a short sale this is critical.  Any money judgments against the property need to be negotiated with the lien holders.  If we do not know about them, we can't negotiate them.  It is also very difficult to renegotiate with a mortgage company to pay a judgment after they have already approved a short sale and that judgment was not listed as an expense from the beginning.

On top of that, many judgments for credit card liens and medical liens are very difficult to get released for less than full payoff.  Spending months negotiating a short sale on a property that has unknown judgments on it that will doom the property to foreclosure, or the seller into bankruptcy, is not fair to all parties involved.  These need to be known up front so that if they are unwilling to negotiate, all parties know it sooner rather than later.

One of the most useful resources here in CT is Jud.CT.gov.  Here you can search by the seller's name and find foreclosures and lawsuits.  There are 2 areas to search.

Under the Case Look-up link on the left;

1. Civil/Family will find foreclosures, collections and divorces.  If the plantiff has the same last name as your client, it's probably a divorce

2. Small Claims will find all small claims files.

Any judgments for collections or small claims that do not show as satisfied are more than likely recorded as a lien on the property as well.

In addition to this resource, the town clerk's office will have any and all liens recorded against the property.  When searching though an electronic index the following guide of commonly used document short cuts may be useful.

ASN = Assignment, FCL = Foreclosure, IRS = IRS Tax Lien, JDG = Judgment Lien, LN = Lien, LPN = Lis Pendens (foreclosure initiated), MEC = Mechanics Lien, MTG = Mortgage, QTC = Quit Claim, REL = Release, SOJ = Satisfaction of Judgment, TXL = Tax Lien, WAR = Warantee Deed

This is by no means an exhaustive list and the short cuts differ from town to town.  You may also come across others that are less common.

But if you are fortunate, your listing will have 1 War, 1 or more MTG and that is it.

When processing a file for a short sale, we typically try to check any online resources available to us to investigate the status of the title.  But we rely heavily on the listing agent and the seller to inform us of any issues that need to be addressed in the short sale negotiations.  The only other alternative would be to require every single seller that we process a file for to pay for a title search on their property.  Since these issues come up without being presented to us by the agent or seller a small percentage of the time, we feel that would add cost to many sellers unnecessarily.

These issues can be easily discovered by a cursory search of the land records by the listing agent and many brokers already advise or require their agents to do so given the pervasiveness of title issues today.

So if you do not often take this extra step on your listings, I hope these suggestions cause you to consider doing so in the future to save yourself some future headaches.

Sean Wilder

The Short Sale “BPO” Quandary!

Posted on 16. Feb, 2011 by ctlms in Foreclosures, My Blog, News, Real Estate, Short Sale, foreclosure

With every short sale there is a BPO or appraisal.

These 2 "opinions" of value are not created equal.

So what is a BPO?

BPO stands for Broker's Price Opinion.  It is much like a CMA (Comparative Market Analysis) that an agent would do to help a seller determine their list price.

However, a BPO is done on the lender's own form and the lender dictates how it is done.  Unlike an appraisal that is done to specific standards that all appraisers must follow.

BPO requirements can often dictate that the agent must use certain kinds of comps, can't use other kinds of comps, and can or cannot make certain adjustments.  These limitations often can cause the value estimate to not match what a real world buyer is actually willing to pay for the property.

So why do lenders do BPOs instead of appraisals?

Easy....Money.  BPOs are less expensive to order and the lender can make the above mentioned restrictions on how the value is derived.

FHA and VA loans must order FHA and VA certified appraisals and cannot order BPOs.

But most other short sales end up with a BPO and not an appraisal.

Whether it be a BPO or appraisal, the value typically goes through some sort of audit when it gets to the lender.  This entails the comparison of that report with a desktop valuation and possibly a review of online comps.  Obviously this is done by someone that has not seen the property in person.  This process can also result in an inflated value.

So what can we do to avoid these inflated values killing our short sales?

The BPO is the most important part of the short sale.  We can do everything else 100% to the best it can be done and the BPO can still kill it.

So what do we do?

Firstly, the BPO agent cannot be allowed to just go to the property alone with no contact from the listing agent.  Who knows more about this property than the listing agent?  No one!

There are certain pieces of information that we want to make sure the BPO agent has access to to make their job easier and to make sure the take them into account.

1. The offer

2. The listing history

3. Relevant comps

4. Repairs

5. Showing feedback

We want the BPO agent to know that the property is a short sale.  They may think it is an REO.

We want them to see what prices the property did not already sell at.  If the property has already been on the open market and on the MLS at a price and did not bring offers, then the buyers out there today are not willing to pay that price for it.  And what is market value anyway?  It is what a ready, willing and able buyer is willing to pay.  So this should be the most important information available as to what the current market value is NOT.  Of course, not everyone agrees with me on that point.

We also want the BPO agent to know what the current offer is.  If the property was marketed for say. $100k then $90k and then $80k before getting an offer of $75k, wouldn't you think the current value is probably somewhere between $80-75k?  If it were more then why no offers before now?

It is a good idea to do your own comp research and supply that to the agent as well.  For all you know that agent is doing 10 BPOs today and has very little time to research comps.  Make sure they have as much info and have to do as little work on their own, in case they don't have time to do it.  Don't assume that someone else will care as much about this deal and your clients as you do.

Repairs.  This is a tough one.  If there are issues with the house that will make its value different then the comps available, we need to know how much that is worth.  This can be the hardest part.  BPO agents and Realtors in general are not well trained on estimating repairs.  Often buyers are not willing to do the leg work to get repair estimates either.  So this can be a tough thing to estimate.  But at a minimum we want a list of what is wrong so the BPO agent knows about it.  This is another reason why having the home inspection done before submitting a short sale offer can be very helpful.  Supplying the BPO agent with the deficiencies found in the inspection is great information.

So what happens when we do this and the BPO still comes in way above all reasonable offers?

We use all of the above mentioned information, and more, to dispute the value with the lender. Make no mistake, this is much harder to do than if the value had come in accurate to begin with.  But it is our last shot at saving the deal.

Some lenders will accept a well put together market analysis with photos, comps and a market description done by the agent to dispute the value.  I have had some very well put together packages done by the listing agent shave thousands of dollars off the lenders opinion of value.  Other lenders will only consider the buyer's lender's appraisal.  This creates another challenge where the buyer, or someone, has to be willing to pay for the appraisal.  And the lender wants the buyer's lender's appraisal, not just some appraisal that the buyer paid for directly.  They want to know it was as unbiased as possible.

So what else can we do?

Aside from the above mentioned items, there is one other thing the listing agent can and should do when time allows.  That is to set a marketing history.

How to set a marketing history.  As mentioned above, we want as much ammunition as possible to justify the offer as being current market value.  One of those pieces of information is the marketing history of the property.

If the property was listed at a "fire sale" price and received a full price offer the very first week, what do you think the first thing is that the lender will think? "You could have gotten more money."

We want to e able to show with the marketing history that we were NOT able to get more money or a higher offer.

No my usual rule of thumb is to start the listing about 10% higher than where you think it needs to be to get an offer.  Give it 3-5 weeks then lower it half way to that price.  Give it another 2-3 weeks then lower into that range you believe it needs to be in to get an offer.  If after another 2 weeks there are still no offers, continue to lower it.  Now this is different depending on the price range.  Higher value properties typically don't need to start a full 10% high, but this is just a rule of thumb.

This strategy helps to establish that the property could not sell for a higher price and, if we are fortunate, the offer that comes in will be relatively close to the listing price at the time.  This is also important as most BPOs do not come in lower than the price the property is listed at at the time the BPO is done.

In conclusion, never underestimate the importance of the BPO or appraisal that is done for a short sale.  That one piece of the puzzle can make or break your chances of helping your client.

Sean Wilder

Good Changes Coming to HAFA

Posted on 06. Jan, 2011 by ctlms in Foreclosures, My Blog, News, Real Estate, Short Sale, foreclosure

There are some changes coming to the HAFA short sale program that will positively affect your clients

on Dec 28, 2010 Supplemental Directive 10-18 was issued by the Making Home Affordable program.

These changes take affect Feb 1, 2011.

Many of these changes address negative issues that have limited this program up until this point and have disqualified many sellers.

Key Changes coming;

  1. Vacant or rented properties will no longer be disqualified from HAFA so long as the property was the seller's primary residence within the last 12 months.
  2. There will no longer be a requirement that the seller's current mortgage payment be greater than 31% of their current gross income.
  3. HAFA no longer requires the sellers financials be reviewed for qualification.  However, the servicer or investor may still require it.
  4. Payouts to subordinate liens are no longer limited to 6% of the subordinate liens outstanding principal balance.  The Max aggregate payout is still capped at $6,000.  It is now up to the investor to determine their allowable %.
  5. Real estate commission cannot be cut to less than 6%, even when pre-applying for the program.  This was a major negative previously.
  6. Servicers are now required to respond to short sale requests within 30 days, whether the files was pre-applied for or not.  We'll see about this one.  They don't meet the timeline requirements now, so I don't see that changing.

In all these updates to the program should remove some roadblocks that have disqualified seller's in the past.

Unfortunately, not all of the negatives to pre-applying for HAFA prior to having a purchase contract have been removed.

  1. Seller's may still be required to pay mortgage payments equal to 31% of their gross income during the marketing period after pre-applying.
  2. Lender's doing their value determination when the property has not been marketed and there are no offers from the market often come in higher than future buyer offers do.  So pre-applying is still a gamble when it comes to the lender's determination of value and should it come in high, limited ammunition is available to dispute it.
  3. An value that come in higher than the market is willing to pay can doom a seller to having to accept a deed-in-lieu of foreclosure.  Having a full marketing history and offer to show the BPO agent is always the best strategy to combat and unrealistic value.  Whenever possible this is my suggestion.

I believe these changes to the program will allow many more sellers to sell their properties via a HAFA short sale which will afford them a full release of liability on the loan when the house sells.  This will allow them to move on with their lives.

On caveat to this update.  This update is for non-GSE loans only.  So these changes are for non Fannie-Mae and Freddie Mac loans.  The 2 GSEs have their own versions of HAFA and their own guidelines.  We will have to wait and see if they implement these changes also.

Sean Wilder

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