Choosing a real estate broker
According to the National Association of Realtors, 90 percent of their members perform only one to four real estate transactions a year. Read that again – it‟s astounding! In any profession, practice makes perfect.
Those that do the work consistently, over time, become experts. While many of these part-time agents may be perfectly capable of steering a traditional real estate transaction to a close, it‟s doubtful they have the knowledge to do the same with a short sale.
LeBron James walks onto a basketball court and makes the game look effortless. He doesn‟t do that by playing one to four times a year. He didn‟t become an expert at his craft without doing what he does over and over on a daily basis – for years – until the process became second nature.
It‟s the same with short sale listing agents. Only those that have successfully handled a large amount of short sale transactions should be considered experts or, as so many agents label themselves, “short sale specialists” (even though they aren’t). Only the agent that handles short sales on a weekly basis is up-to-date on the latest rules and systems and has built a network of lender contacts.
Speaking of which, avoid the agent that lacks relationships with asset managers at the various big lenders. The time it will take that agent to determine who will handle the short sale, how to reach this person, and finally speak with him or her to obtain a signature on the authorization form, is time wasted.
And, as you‟ll recall, in a short sale, time is of the essence. The Dreaded Deficiency Judgment Think you‟re off the hook after the short sale for the money you lacked to pay off the mortgage? Think again, my friend. The dreaded deficiency judgment can still rear its ugly and expensive head – even years down the road.
Allow me to explain. Say you owe $300,000 on your mortgage, yet the short sale only nets the lender $200,000. That extra $100,000 that you are short is known as a “deficiency.” Releasing you from this deficiency does not go hand-in-hand with the lender‟s authorization to short sell the house.
Whether the lender will pursue you for payment of the deficiency depends, first, on whether you live in a recourse state or a non-recourse state. Wisconsin is a recourse state, which means that its laws allow for deficiency judgments. Minnesota is a non-recourse state, with anti-deficiency statutes.
This sounds like good news until you realize that the statutes don‟t apply to you. Our state‟s statutes prohibit lenders from pursuing a deficiency judgment only if the home goes through the foreclosure process. Since a short sale prevents a foreclosure, the statutes offer no protection to short sale homeowners.
Imagine being represented by a real estate agent lacking in-depth knowledge of the short sale process. Does he have the skills to negotiate with the lender of both the first and second loan (if you have one), to waive the deficiency?
Has he built the relationships within the big mortgage companies that help to facilitate such negotiations? Are you willing to be his test subject when it could mean being on the hook for an enormous pile of money? While it‟s easier to have the first mortgage deficiency waived, the second may be challenging.
This is where the agent‟s years of experience, and the level of trust she‟s built within the various lenders‟ short sale teams, determines whether your second lien is waived, or you have to come up with the money to pay it off before the lender will allow the short sale.
Other Common Mistakes Inexperienced Agents Make On any given day, your lender‟s short sale team may have up to 75 or more short sale packageson their desks. Over 30 percent of these short sale requests will be denied because of listing agent errors. Now, many agents unfamiliar with the process are quick to blame the buyer‟s agent. However, the buck ultimately stops with the listing agent.
Some of the more common errors lenders see include the following scenarios:
The listing agent lacks the legal knowledge required to conduct a short sale. Many homeowners have lost their homes to foreclosure after lenders learn – typically late in the process – that the transaction is not at “arm‟s length,” thus canceling the transaction.
Inclusion of purchase agreements requesting repairs – at the lender‟s expense – to be completed before the close of escrow. Lenders won‟t pay for repairs, and, since the seller is insolvent, neither will he.
Short sale specialists know that a repair contingency in a purchase agreement will derail the deal so they won‟t accept one. Instead, these specialists submit a counteroffer to the buyer, insisting that he remove this contingency.
The buyer isn‟t sufficiently pre-approved for a mortgage. The inexperienced listing agent will leave the vetting of the buyer‟s loan approval up to the buyer‟s agent – a big mistake. It is up to the listing agent to foresee anything that may prolong, or even kill, the transaction.
The offered purchase price is less than what the lender would realize from a foreclosure sale. The short sale expert understands market value and what the home will likely bring at auction. Submitting an offer for less than what the lender will make at auction is a waste of time. The listing agent asks the lender which forms to use, how to fill out the contract, and for any number of other pieces of advice that he or she should already know.
The lender‟s short sale negotiator typically isn‟t a real estate attorney or broker, and doesn‟t have time to school the novice short sale agent. Are you willing to wait while your real estate agent learns the process? Is your lender?
Arm’s Length Requirement One of the negotiator’s most important tasks is to determine that the lender is receiving the most amount of money possible for the sale of the house. This assurance comes from several processes:
the Broker’s Price Opinion; proof that the home was effectively marketed to the public; seeing the physical proof of all offers received; and determining whether the short sale transaction is one known as “arm’s length,” meaning none of the parties have close ties, such as family members, friends or business associates.
The arm’s length requirement came about as a result of homeowners performing backroom deals at the lender’s expense. The short sale package is incomplete. Inexperienced agents frequently make this mistake. What happens then is that the homeowner‟s file goes to the bottom of the stack until the lender’s short sale team receives the appropriate documents.
Again, anything that delays the process puts you in danger of losing your home to foreclosure. Although it may sound unbelievable (with all of the news reports about how lengthy the short sale process can be), I have had inexperienced buyer‟s agents submit offers to purchase with 30-day acceptance clauses – meaning the buyer is insisting that the lender respond to the offer within 30 days.
I have also heard of inexperienced listing agents counseling their clients to accept these offers, and then sending them off to the lender. There is no way a lender will accept a 30-day acceptance period, so these agents‟ ignorance present yet another risk to you, the homeowner.
Agents who don’t perform a lot of short sales, especially those working on their first, typically take the homeowner’s word that he or she doesn’t have PMI (Private Mortgage Insurance). Since it is entirely possible that the lender took out a policy without the homeowner’s knowledge, the experienced short sale expert knows to verify the homeowner’s claim.
PMI companies can stop the short sale process, so it’s vital to know whether the home has a policy. (See Chapter 9 for more information on PMI). Although the short sale is a time-sensitive transaction, and the urge to rush the agent hiring process is common, take the time to ensure that you are hiring the right agent.
Tips for choosing a real estate agent
Here are a few tips: Don’t Be Sentimental Your short sale is too important to your financial future to entrust to Aunt Tillie who, although she has been in real estate for decades, is not a short sale expert. Although real estate agents typically expect family members and close friends to throw their real estate deals in their direction, the short sale is an exception, and where you should put your foot down.
Be Relentless As a real estate agent, I would love to be able to counsel you to choose me to handle your short sale. While I am the best choice in Minnesota and Wisconsin, that advice would be self-serving.
This book is meant to teach you about the short sale process, not to toot my own horn, and, like any other part of the real estate transaction, this process requires due diligence on your part. My advice to you is to interview at least three agents for the job of listing your short sale. Like any other job interview, you need to ask lots of questions, and ask for documentation to back up each agent‟s claims.
You must be relentless in your vetting of the agents. (See Appendix iifor more tips and questions to ask potential listing agents).
The HAFA Short Sale 2019
It stands for Home Affordable Foreclosure Alternatives, but most folks know it as HAFA. This program is a component of the U.S. government‟s Making Home Affordable program, which aims to both streamline and simplify the short sale process, and to help underwater homeowners move on with their lives by providing financial assistance.
Because HAFA short sales are only offered to homeowners with mortgages owned by Fannie Mae, Freddie Mac, and to those who hold non-government sponsored lenders (government-sponsored loans would be FHA or VA loans – these loans have their own short sale programs, and we’ll look at these in forthcoming chapters), it is imperative to know who owns your loan before proceeding.
If you took the time to carefully choose your listing agent, he or she can assist you with this. To help you decide whether a HAFA short sale is the choice for you, let‟s look at the advantages and disadvantages.
Hafa benefits to the homeowners
It‟s difficult to imagine that losing your house has any advantages whatsoever, but when the loss is unavoidable, it‟s best to look for the most painless way.
HAFA has some attractive advantages that are lacking in the traditional short sale: The homeowner is released from the mortgage debt – including the amount he or she is “short.” Homeowners may be eligible to receive $3,000 in relocation assistance. HUD housing counselors are available, offering free advice.
The homeowner, the listing agent, and the lender work together to determine the best price for the home. HAFA short sales are easier on the consumer‟s credit report than conventional short sales. This is because they usually close quicker, eliminating the amount of missed payments. The lender pays your agent‟s commission, as well as customary closing costs.
Hafa short sale disadvantages
While the advantages far outweigh the disadvantages, it is important to weigh the pros and cons of any real estate transaction to ensure that it is right for you. HAFA provides $8,500 to pay off a junior lien, such as a second trust deed.
Many second lien holders are unwilling to accept only $8,500. If you hold a substantial home equity loan balance, for instance, HAFA may not be a viable option for you. If the lender doesn‟t accept the short sale, or the lender fails to close escrow within 120 days, the homeowner is expected to submit a deed-in-lieu of foreclosure.
Homeowners with cash reserves equal to three month‟s mortgage payments or $5,000 (whichever is greater) may be disqualified from the program. To make matters even more confusing, Fannie Mae and Freddie Mac use different HAFA forms.
Freddie Mac requires an accepted short sale agreement before you list the property. Although the programs are almost identical, there are other subtle differences between them that only a real estate agent thoroughly familiar with the HAFA process is aware of.
Eligibility Requirements If the HAFA sounds like something you‟d like to pursue, take a look at the following eligibility requirements to see if you qualify: Fannie Mae or Freddie Mac owns your mortgage. You have lived in the home for the past 12 months. Your primary mortgage balance does not exceed $729,750.
You owe more on the home than what you can realize when you sell it. You obtained the mortgage before January 1, 2009. And You are able to prove a valid financial hardship that makes it impossible for you to pay your debt. You are more than 60 days delinquent on your mortgage.
You‟ve not been convicted of felony larceny, theft, forgery, tax evasion, fraud, or money laundering in connection with a real estate or mortgage deal over the past 10 years. The home is not condemned, abandoned or vacant. Applying for the HAFA Short Sale Short sales, whether conventional or through a government program, are paperwork intensive. As you can imagine, the government programs have mountains of forms for the homeowner to fill out and submit.
If you feel that you qualify for a HAFA and wish to pursue this type of short sale, it is imperative that you employ a short sale certified real estate agent. These agents typically have the Fannie Mae and Freddie Mac forms required to get the process started. HAFA, like many recent government programs that aim to help homeowners, has a shelf life. The deadline for performance of a HAFA short sale is December 31, 2013.
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