Loss Mit Services

Time is of the Essence for Short Sales right NOW!

Posted on 01. Aug, 2013 by ctlms in Blog, Foreclosures, My Blog, Real Estate, Short Sale, foreclosure

The Mortgage Debt Forgiveness Act of 2007 Expires 12/31/13

What does this mean and why is it important?

This act is what many short sale sellers use to avoid owing any taxes on the debt forgiven by their lender in a short sale.

You see, the IRS considers any forgiven debt to be taxable ordinary income, unless you qualify for an exemption.

This exemption was signed into law in 2007 and has been extended a few times as the housing crisis has continued.  It was most recent extended at the end of 2012, when it was set to expire, as part of the last minute fiscal cliff agreement.

So far there are no signs that it will be extended again and given the budget issues of the federal government, it is very possible it will not be extended again.

So what does this mean for you?

What this means is we have to do everything we can to get your short sale closed by 12/31/13 in order for the seller to be able to utilize this exemption to avoid potentially owing thousands of dollars in taxes to the IRS.

But it is only Aug... Why worry yet?

The reason I bring this up now is that it may already be too late.  The average short sale takes about 90 days from submission of an offer to when the approval letter is issued.  This process has been taking longer in recent months, not less.  Plus, after we have short sale approval it is often 30-60 days before the buyer's financing is ready to close.

So that means we are looking at potentially a 5 month process from Offer to Closing.  We have exactly 5 months left before 12/31/13.  So for some short sales, it may already be too late if they do not already have offers, or have circumstances that may cause their short sale to take more than 90 days to get approval.

So what can you do?

The biggest take away here is that we cannot sit on our hands when marketing these properties.  If it has been 2-3 weeks at your current price and there is no reason to believe an offer is coming, it is time for a price adjustment.  Right now sellers have no time to be waiting around for the perfect buyer at the perfect price.  They need the best offer they can get NOW.

This may mean that the offer you get could be a little lower than the very best offer out there.  And yes this may mean that the offer does not get accepted and the bank counters.

If they counter the buyer has the option to raise their offer.  We can also try to dispute the bank's opinion of value to reduce the counter.  But in the end, an offer may not be accepted.  At this point the seller typically has the option to ask the bank if they will accept a Deed in Lieu of Foreclosure (DIL) and basically give the bank the property in exchange for being relieved of their obligation to repay the loan.  In this situation there is still debt forgiven and if completed by 12/31/13 the seller still may qualify for the exemption.

In a DIL there is typically no commission meaning the agents do not get paid and neither does a debt negotiator like me.  But we have to be always looking out for what is in the best interest of the homeowner, not ourselves.  To that end we have to do everything we can to get the homeowner's debt forgiven and this situation resolved for them by 12/31/13 if at all possible.  It is just the right thing to do, even if not beneficial to us in the end.

The karma will come back to you 10 fold with referrals from grateful homeowners you helped.  Trust me.  I have probably earned more income from referrals from clients we helped but never got paid for, than if each of those transactions had resulted in a short sale closing and a check, rather than some other workout for the homeowner we did not get paid for.

So please keep this in mind moving forward for the rest of this year as it is very important to your clients.

Sean Wilder

Disclaimer:  These are my opinions and nothing here should be considered to be tax or legal advice.  All homeowners should consult with a qualified attorney and CPA when completing any workout option.

The Short Sale Landscape is Changing

Posted on 22. Jan, 2013 by ctlms in Foreclosures, My Blog, Real Estate, Short Sale, foreclosure

Short sales are part of Loss Mitigation for the banks and the Loss Mitigation industry is constantly changing.

Over the past couple of months there have been a few major changes happening that affect short sales.  Not all of them for the better.

One common instance we are seeing is that many of the larger banks, that have had to settle with the government over foreclosure abuses, are service releasing large numbers of their delinquent loans to other services that are not bound by these settlement agreements.  This means many homeowners that are currently with a servicer that offers increased relocation incentives as part of that settlement, may find their loan is transferred and they no longer qualify for that incentive.  This transfer can even happen in the middle of a short sale, causing delays.

Another item we have seen, in particular with Bank of America but also with other lenders, is the forgiveness of some second mortgages in full, without a short sale.  This sounds great and is good when doing a short sale since you no longer have to negotiate with the second mortgage.  However, most of these loans that are forgiven are seriously delinquent and the banks know they will not recoup the money, or very little of it, anyway.  But by forgiving the full amount of it, they can "cook the books" for some of the foreclosure settlements requirements and take credit for a much larger principal forgiveness then they would seen from those loans anyway.

For short sales specifically the biggest change we have seen is the expiration of the Home Affordable Foreclosure Alternative (HAFA) short sale program for Fannie Mae and Freddie Mac owned loans.  HAFA still exists for the rest of this year for eligible loans not owned by the 2 GSE's.

With the expiration of HAFA for Fannie and Freddie came a new program called the Standard Short Sale program or HAFA2.  This program is open to many more homeowners than those that qualified for Fannie and Freddie's very restrictive HAFA program.  This new program also has some streamlined processed for seriously delinquent borrower with low credit scores.

However the program does have it's downside.  Firstly there is a new valuation process in use which is more commonly coming back with inflated values that are well above realistic market value.  This causes reasonable offers to be rejected because the banks are given a much higher Minimum Net requirement from Fannie and Freddie.  NAR and other industry groups are aware of this are attempting to have the FHFA , which is oversight for Fannie and Freddie, address this issue.  But for now we are stuck with it and it can be very frustrating.

Another negative to the program guidelines is that Waiver of the Deficiency balance is not guaranteed.  This means that not all sellers will be able to walk away from the remaining debt.  The new program has a detailed calculation that the lender must do to determine if the seller must be requested to bring cash to closing and/or sign a promissory note.  If the seller refused, the servicer no longer has the authority to approve the short sale on their own if the rest of the file is in line.  Instead they must send the file to Fannie or Freddie for their review and hopefully approval.  This is a negotiable term, but I have seen it go both ways already with some sellers being waived of this requirement and others having their short sales denied for not accepting.

The program is still very new so it is yet to be seen how common this is going to be, but it is here and we have to deal with it when it comes up.

Some other issues currently with short sales are seen with FHA loans. FHA is having serious cash reserve problems and may need to be bailed out.  Because of this, FHA has gotten much tighter on closing costs for attorneys and other fees.  In addition, Variance approvals for sellers that do not meet some of FHA's restrictive guidelines are being denied more often than in the past, likely in an effort to delay having to pay the insurance claim to the bank until later on when the property is foreclosed on.

A big take away from all of this is that we have to get involved with the servicer on the loan(s) as early as possible, preferably before there is an offer.  This way we can determine what kind of potential obstacles await us and can set the correct expectations for the process with all parties involved.

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