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Short Sale Tip 11-12-09
Posted on 12. Nov, 2009 by ctlms in Short Sale, foreclosure
Some lenders just LOVE to cut commission.
Yes, unfortunately there are some lenders that have policies about how much is an acceptable commission on a short sale. Many will approve whatever is normal in the area. FHA, Fannie Mae and Freddie Mac all allow a maximum of 6% if it was in the listing agreement. Don't forget to ALWAYS get at least a 6% commission when it is a short sale.
Now some lender such as Ocwen Loan Servicing have less favorable policies. Ocwen's policy when they have to take a discount is no more than 4% commission no matter what. Kinda. They will sometimes allow 5% if they consider the offer to them to be "good". They are also more firm on this policy when they are in the 1st mortgage position.
Now I am of the mind that "some rules are made to be broken". And I think this is one of those. Thus, whenever possible we go to bat HARD to higher commissions.
Obviously if every lender did this, agents would flock away from short sales in droves which is one of the many reasons why cutting commissions is just STUPID in the first place. But the lenders are in control, unfortunately.
Anyway, with all that said...I just got an approval letter on a short sale where Ocwen was the second mortgage. They approved an offer to them of 10% of their principal balance, just over $2,400, and with 6% commissions.
This took me calling every day for 5 days until I finally got a rep that would listen to why it made sense to Ocwen to accept the offer. I'm not going to get into the specifics, but the point is, without that persistence, and knowing that not all rules are written in stone, this deal would have been capped at 5%.
Another thing to note about commissions and short sales has to do with the number of agents and brokerages involved with the offer. If there is only one agent involved it is highly likely the bank will cut the commission. Some lenders will cut it as low as 3% others will allow 4-5% when they would have allowed 6% with 2 agents.
Now it gets worse when there is only one brokerage involved. Many lenders will, regardless of how many agents are involved, cut the commission when there is only one broker. If there are two agents at the same brokerage we can sometimes get the lender to agree to the full commission, but not always.
The point here is if you are thinking of working a short sale as a dual agent, you may be better off referring the buyer to another agent, and preferably one in a different brokerage to assure the maximum commission. No point in working both sides if you will only be paid for one. And a referral fee for the other side is better than working it for free. Having one brokerage has the highest likelihood of a cut in commissions.
So the point of the this Short Sale Tip is to know going in what likelihood is of a cut in commission. You want to be informed of the chance of a commission cut and you definitely want to inform the buyers agent of it. The buyers side will be very upset if they had no idea of the possibility of a commission cut and then after months of waiting for an approval, find out they are getting paid less. And as with all short sales, always disclose in the MLS that commissions are subject to lender approval.
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Bio
Sean Wilder started in the pre-foreclosure business in 2007. Previously he enjoyed successbusiness in the transportation industry, real estate investing and as a licensed Realtor. Sean brought the same determination and work ethic that lead to great success in his previous businesses to Loss Mit Services based in East Windsor, CT. His focus, combined with his drive to succeed, have been essential to his success as one of the area's top short sale negotiators.
Known for finding creative ways to overcome hurdles and never ending persistence; Sean, believes in the power of team. Sean and his team are in the trenches everyday, plowing through challenges and objections while negotiating with various lenders, and finding solutions to difficult problems. It is this daily experience that brings Loss Mit Services consistent success and provides them the knowledge to share.
Sean belongs to a number of industry groups and associations that allow him to collaborate, share, learn, teach and stay updated on the latest changes in the pre-foreclosure industry at the federal, state, local and lender specific levels.
Effective Oct 1, 2009 all debt negotiation companies that offer loan modification, short sale, or foreclosure rescue services needed to be licensed by the CT Dept of Banking. Sean and his company Loss Mit Services were the 1st to be awarded the Debt Negotiation License NMLS # 828273 which can be verified at the CT Dept of Banking Website by Clicking Here. In addition, effective Oct 1, 2011 Debt Negotiators were required to also be licensed Mortgage Loan originators and Sean also has received this license, NMLS# LO-831853.
When a short sale seller accepts an offer from a buyer, is that the only offer the bank sees or does the bank require the seller show them all offers even ones that come in after the seller has accepted an offer?
Do banks ever consider lease/options on short sales?
Thanks for the great question Carl,
The simple answer is.. It's all up to the seller.
Just like any transaction the seller has ownership of the property and they have the final decision as to what is, or is not, sent to the bank.
As in any transaction, the sellers can only sign one offer. The first offer would have to have been rejected by the lender or rescinded by the first buyer, before the seller could sign another offer.
In this kind of situation knowing who the lender is and what there process and tendencies are is key. For instance, some lenders require you to start over from the beginning of the short sale review process if the buyer changes. So an offer that is just slightly higher than the first is not worth sending to the lender because of the huge delay it would cause.
Also confusing the lender with multiple offers will drag along the process as well.
If you have multiple offers before anything has been sent to the lender, you, the seller, and your negotiator should discuss which offer is best AND has the highest likelihood of being accepted by the lender. The fact that other offers have been received may be good evidence that the offer accepted is at market value.
The same can be said about offers received after an offer is sent to the lender, unless they are substantially higher, it usually is not the best idea to submit it to the lender unless they have countered or rejected the first offer.
It is somewhat a case by case decision, but the sellers are in charge of what is sent to the lender and there is no requirement that every offer be submitted to the lender.
As for the Lease/Option question.
It is very, very unlikely that a lender would accept that kind of offer. When accepting a short sale offer, the lender wants to be paid off within 30 days of the approval. It is very rare to receive an approval letter that does not expire in 30 days or less. When reviewing the offer the lender will look at when the buyer can close and how long after they approve the offer, the closing will occur. If it is farther than 30 days from acceptance, they may ask for the contract to be amended for the closing to be within 30 days of acceptance. It is the same with a Hubbard. Not worth sending to the lender because it will be rejected almost immediately.
Hope this helps you out.
Feel free to call me at the office if you would like to discuss this further or for more assistance. 860-265-3727
Thanks