Loss Mit Services

Short Sale Tip of The Week 5-13-09

Posted on 12. May, 2009 by ctlms in Short Sale, foreclosure

My client needs a short sale but is current on their payments.

What is my best course of action with this listing?

Lets first start by saying that YES, any home that is upside down “can” be short saled.  However, just because it is possible does not make it a guarantee.  Short sales on a whole are not guaranteed.  A short sale is a privilege not an entitlement.  So setting proper expectations with both the seller and the buyer is crucial to a smooth transaction for the real estate agent.

For transactions involving an upside down property that is not in default, there are extra circumstances that are important to discuss with the seller.  The most important of which is the likelihood of a promissory note for the deficiency balance.

When a homeowner is in default and has very little or no money or income to make any payments toward the deficiency created by a short sale, it is rather easy to convince the lender to settle the account in full and relieve the homeowner from the obligation to repay the balance.  However, when the homeowner is not in default it becomes more difficult.

The whole short sale process is more difficult for the negotiator when the homeowner is not in default.  Lenders need to see a Financial Hardship and the fact that the property is not worth the debt in order to approve a short sale.  In the case of a seller that is under water but not in a financial hardship there are some extra hurdles to overcome.

The first hurdle is getting the lender to look at the file all together.  Today most lenders are in firefighting mode.  That means they are trying to put out the hottest fires first.  A loan that is current is not a fire at all to the lender so it tends to go to the bottom of the pile.  So persistence is necessary to get the file looked at.

Once the file is looked at another hurdle is met.  The fact that the homeowner can afford their payments makes the lender want to just tell the seller to not sell and keep paying.  That way there is no issue for the bank at all.  But we all know there are circumstances that force homeowners to sell such as divorce, job transfers, reduction in pay, etc.

Now a homeowner still has a legitimate hardship if they have had a reduction in pay or increase in expenses, is current on their payments but expect to fall behind in the future.  This is known as imminent default.  Their financials will clearly show that they will no longer be able to afford the home.

If their financials do not show imminent default but the homeowners still need to sell the bank will most likely require some sort of promissory note.

A promissory note is basically an unsecured loan.  Most notes in a short sale are for all or part of the deficiency balance and have low or no interest with set payments per month.  The notes are negotiable and that is where the real work comes in for the negotiator in these cases.

Obviously the homeowner wants the account settled in full.  But the lender is unlikely to approve that when the homeowner has the ability to repay some or all the money they borrowed.  So negotiating these notes to as little as possible and for as low an interest rate as possible is the aim of the negotiator.  This is not something you would see your average real estate agent being familiar with. 

So let’s go over an example.  The facts:

Loan balance is $290,000

Property’s current fair market value is $250,000

Payments are current and sellers have no financial hardship but have no cash to bring to closing.

So a sale will create a $40,000 loss to the bank right?  Wrong.  There are closing costs totaling about 6%, that’s another $15,000.  So the total deficit is $55,000.

The lender will most certainly ask for the $55,000 in a note.  The negotiator will try to negotiate that lower, sometimes to as low as 10-20% or $5,500 to $11,000 with zero or 1-2% interest.

So let’s say that ends up with a note for $11,000 at 2% interest for 10 years and payments of $101.21 a month.

Not so bad to be able to walk away from the $55,000 deficit for $100 a month.  Better than having to find the cash or facing foreclosure.

But this all leads to another question for the real estate agent.  How aggressive should you be with the listing price?  Right now the sellers are paying money to the bank every month they will never see again.  That money could be used to pay down the promissory note instead.  Now if it takes 6 months to sell the house plus another 60-90 for short sale approval and closing that is 9 months of payments thrown out the window never to be seen again.

Let’s work the numbers.  Sellers have a principal balance of $290,000 and the original loan was $300,000 at 6% fixed for 30 years.  They are paying $1798.65 for principal and interest every month plus taxes and insurance.  Of that $1,456.95 is interest and $341.70 is principal, all of which is never to be seen again.  Add that up over 9 months and you have $16,187.85.

The takeaway here is that you could have priced the property lower to start and sold it months sooner and not lost the sellers anymore money.  Remember it is possible to settle promissory notes at 50% or less of the balance.  So even if the house sold for $20,000 less but months sooner, that’s a note for $2,000-$10,000 at low interest.  That’s still financially more beneficial than throwing away an extra $5,000-$10,000 because it took months longer to sell.  Remember the promissory notes are low interest where the payments they are making now are mostly interest.

Obviously this is a conversation to have with the seller when listing the home.  Knowing their current payments and interest can help to demonstrate that getting the home sold quicker but for less is in their best interest.  As always, if they are behind on the payments, getting it sold quicker is best, especially if you can get a contract to the lender before they file for foreclosure.

Visit the Ask The Expert Page to leave your questions.

Short Sale Tip of The Week 5-6-09

Posted on 06. May, 2009 by ctlms in Short Sale, foreclosure

Offers & Backup Offers....What to Send to the Lender?

The lender can say they want to see all offers, but the seller has the final call on what is sent in for approval. The seller "owns" the house, not the lender.  Your client, the seller, decides what is sent to the lender for approval.  Your "fiduciary duty" is to your client not the bank.

So what to do if you receive a higher offer after you have already submitted one to the lender?

Well it depends on the lender.  Some lenders will not allow you to just replace the offer that is under review and they will make you start the whole process over again.  If your seller is in foreclosure, they may not have time to do that and it may be best to proceed with the current offer.  If it gets approved, the bank will postpone the foreclosure if necessary.  If it is denied, they may be more inclined to review a new offer without starting over.

Other lenders will allow you to just provide the new offer.  However, your client cannot sign two offers.  The first offer is still valid until rejected by the lender.  So don't make the mistake of having your seller sign the second contract.  It can usually be submitted unsigned for review at that point.

But remember, a higher offer is not necessarily a better offer.  The buyer will need to close within 30 days of written approval from the lender.  So an FHA or CHFA buyer may not be a good buyer because of the time it takes to get loan commitment.  Now if that is the only offer you have, then submit it.  But if it is a backup and the first offer is lower but has easier financing, that is a conversation to have with your seller.

The banks like easy financing too.  They don't want to be waiting around after they have approved the deal.  Often in order to get an extension, the bank will charge the buyer whatever the per diem interest is in the loan that is not being paid.

And remember a new offer needs a new estimated HUD-1 too.

Often, all negotiations come down to the rapport between the lenders negotiator and the person negotiating on behalf of the homeowner.  Frankly, many loss mitigators don't really like working with real estate agents that they need to hand hold through the process.

The "average" loss mitigator at a major lender right now has at least 300 files they have to work on at any one time.  That is a lot of work to do and they are definitely over worked and under paid.

Also the mitigator is only a "middle man" and usually has to send the file for management approval anyway. If the file has PMI insurance, they may need to approve the deal as well.

Give us a chance to prove to you how easy and profitable short sales can be for you.

Have an awesome day and look out for future tips from us.

Sincerely,

Sean Wilder
Loss Mit Services
[email protected]

PS check out our online short sale processing system at www.CTLMS.com that keeps you, and anyone else you choose, up to date instantly, whenever there is a change to your short sale file.

Short Sale Tip of The Week 4-29-09

Posted on 29. Apr, 2009 by ctlms in Short Sale, foreclosure

Listing Price Changes        When & Why?

When listing a short sale, especially one in foreclosure, your seller is walking away from the closing with no money from the sale.  As long as the sale is approved by the lender(s) and the seller is relieved of the deficiency, the sales price makes no difference.

So why should you wait weeks or even months to lower the sales price if you have not received any offers?

You should not.  It is in your clients best interest for you to sell their property as quickly as possible, regardless if they are in foreclosure or not.

Reasons to be quick to lower the price if your client is behind on payments:

• Every month that goes by is another month they are marked as late on their credit report
• Every month their are more and more fees being added to their debt that must be negotiated away with the sale
• The stress alone is worth getting it done asap
• Even after an offer is received it can take months before a closing
• The foreclosure may happen before you get an accepted offer, you need an offer sooner rather than later

Reasons to be quick to lower the price if your client is current on payments:

• Every dollar they make in mortgage payments from here on is a dollar they will never see again.  They are no longer paying down principal because they are getting no money at closing.
• It is more common for lenders to want the seller to sign a promissory note when they are current and have good credit.  They are better served getting the property sold and taking the money they would have been throwing away on that mortgage interest and putting some or all of it toward that low interest promissory note.
• Once again, just being done with it is important enough to get it done.

As Real Estate agents you all know that "Price Sells", especially today.  So why waste time and money by sitting on a listing that you could have already had under deposit and be half way to a closing if you had lowered the price months ago.

Price reductions are also a great tool to use with the lender when negotiating a short sale.  A good listing history showing successive price reductions and no offers is a good indication of the proper market value to the lender.  You would not believe how often a BPO comes in EXACTLY at the listed price. 

So don't wait for an offer to come in at the price you think the property will sell for.  Start lowering it toward that price asap.

Agents that work with us to get their short sales closed, receive these kinds of tips right at the beginning of the listing process to make the deal as quick and painless as possible.  There are numerous "Tips & Tricks" to successfully getting paid your commission when dealing with today's short sales.

Give us a chance to prove to you how easy and profitable they can be for you.

Have an awesome day and look out for future tips from us.

Sincerely,

Sean Wilder
Loss Mit Services

PS check out our online short sale processing system at www.CTLMS.com that keeps you up to date instantly, whenever there is a change to your short sale file.