Short Sales and the HUD-1 Settlement Statement

Short Sales and the HUD-1 settlement statement.

The HUD -1 settlement statement is one of the most important documents needed when initiating a short sale with a lender.  The main item on this document is the amount the lender will receive after all closing costs are paid.  Should the amount of property tax due change from the time of the short sale approval to closing, then you will have to go back to the lender for them to re-approve the short sale.  This can take days to be resolved.  Worse if the new amounts are not approved by the lender then your deal can fall apart.

Below are the items that will be on the HUD-1 and how to predict with a fair degree of accuracy what the actual amounts will be at the time of closing:

  1. Real Estate commission.  Obviously this is the most important factor to all realtors.  We do not mind putting the work in on a deal, as long as we can earn something when it closes.  6% of the purchase price, or whatever the short sale lender has agreed to pay.
  2. Recording fees.  The seller typically pays the cost to record the deed.  You can contact the county clerk or a local title company
  3. Transfer Tax.  In some areas there is a tax paid on the purchase price.  You can contact the county clerk or local title company to find out how to calculate this amount.  Typically it is expressed in a cost per $100 or cost for $1000, ie $4 per $1000, this means if the purchase price is $100,000, you divide the purchase price by $1000 (which will get you $100), then multiply that number by $4 ($100 X $4), or $400.  If in your area it is customary for the seller to pay this, be sure to add it to the HUD.
  4. Charge for recording the satisfactions of mortgage or mortgages.  When the short sale lender receives their money they will issue a letter of satisfaction that needs to be recorded.  Find out from the local title company the amount to collect for this recording fee.  Same for the second lender or junior lien holders.
  5. Sellers Attorney.  Typically the lender will pay for the sellers attorney
  6. Loss mitigation services.  I have seen some lenders approve the charge from the attorney realtor or company that does the negotiation for the short sale.  I have seen a wide range of charges for this, from $500 to $4000.  Not all lenders approve this fee.  If it is appropriate be sure to add it to the HUD.
  7. Property taxes.  It is very important to contact the local property tax collector and find out the amount of currently due property taxes.  Find out the due dates for the next tax periods.  Since short sales can take several months to close be sure to add in whatever taxes will be due.  Most lenders require a tax page to be provided to support the value on the HUD.  Be sure to include the due dates and an explanation letter of why you included the future charges.  Remember that overdue taxes can be sold as a tax lien and will not show up when searching for property taxes that are due.  This is called a tax lien sale.  You need a title company to pull any tax lien sales and be sure to obtain a payoff from the owner of the tax lien as they will certainly be charging interest and additional fees.
  8. Water/sewer charges.  Contact the local water department and if there are sewer charges be sure to obtain them as well.  Same as with the property taxes, be sure to find out the billing periods and include the additional charges to cover how long you think it will take to close.  Get everything in writing to use as supporting documents.  Same as with the property taxes, there may be an overdue amount that was sold as a lien.  If this happens you will not know by calling the water and sewer municipal or department that handles it.  You will need a title company to help you find out this information.
  9. Liens Lis Pendens and Judgments.  Use a local title company to pull up all liens Lis Pendens and Judgments that are against the property (And in some states against the owners individually.).    Once you receive the lien and judgment documents be sure to contact the attorneys listed on the lien to obtain a payoff.  Never estimate.  Get everything in writing and send it the lender when sending the HUD.  Again be sure to obtain the calculation for determining interest and penalties to account for the time it will take to close.
  10. Mortgages.  Before to contact a title company to give you a complete print out of all open mortgages.  If possible run the owners credit to see what is reporting on their credit report.
  11. HOA, common charges, monthly maintenance fees.  Some properties are condominiums, coops or are located in an HOA where there may be some monthly fees that are not being paid.  They too will need to be satisfied.  Be sure to contact the management agent to get a letter stating what is in arrears and how much the monthly charges are, and what interest and penalties if any will be due when being satisfied.

If you think I missed any fees please leave a comment, send me an email at GSchmidt@SiGold.com, or call me at 718-987-4500.  My objective here is to make sure that you are considering all items that will be paid by the seller and how much those items will cost.  All too often a fee is missed or under calculated.  All leading to delays in the closing.

Mortgage forgiveness debt relief and debt cancelation Act set to expire again.

In 2012 I blogged about the mortgage debt relief act, and it was expiring.  On Jan 3 2013 it was renewed another year.  It is once again set to expire on December 31 2013.  With the current stalemate in congress it is possible this Act will not be renewed.  It has never been more important for everyone to write their congress person to renew this law.

What is the Mortgage Debt Relief Act?

In each and every short sale the lender is being asked to accept less than the full balance to satisfy the mortgage.  The amount the lender reduces the debt by is actually taxable.

To be clear, if you owe $200,000 and the lender agrees to accept $100,000 to satisfy the debt, the $100,000 that is being forgiven is actually taxable as income.  That’s right, income.  Someone may owe tens of thousands of dollars in taxes to the federal state and local governments.  This amount cannot be discharged in bankruptcy.

In 2007 Congress passed a law, Mortgage Forgiveness Debt Relief and Debt Cancelation Act, which essentially allows this amount to be forgiven and not treated as income.  At the end of 2012 this law expires.

Further, if you go into foreclosure and the home is sold and the amount it sells for is not enough to pay the first mortgage in full, you will be on the hook for the amount that was not recovered by the lender, and any other lien holder, such as second mortgages, if they settle for less than full balance.  The same goes for credit cards, if you settle for less than the full balance, the amount you did not pay off is income and you have to pay income tax on it…well not for 2013, but if this law is not extended then starting  on January 1 2014 you will.

Please write your congress person and ask them to extend this law.  To find out who your congress person is please click here.

What is happening to Real Estate today 8-5-2013

I wanted to address the news about housing that has recently been reported:

Cnn money reports home prices are on the rise

While they also report that those being bailed out by the Obama Home affordable modification program are defaulting on their new agreed terms.

Further NYC’s local news station, NY 1, reports that there are bidding wars because of the low inventory of homes.

I could go on and on with articles that indicate contradictory news on home prices, value, and the future of real estate.  So what is going on with the real estate market?  More specifically how does this affect the short sales that are on the market?

In the past 8 months of this year my office has held 46 open houses.  Of the 46 open houses a total of 30 potential buyers came to see the home.  Moreover, of the 23 listings my firm has, showings of these listings has been very low.  In some cases not one appointment was made to even see the property.

One property  I would like to highlight.  I have a short sale of a single family detached home on Staten Island.  In a one mile radius my listing is the lowest listed value.  When searching recent sales, three homes sold on the same street as the subject, the homes are identical to my listing, sold in the past 6 months for $20,000 more than what I have the home listed at, yet I have not had one person make an appointment to show the home, and no one came to the 4 open houses I have held.  Hardly a bidding war as many articles indicate there are.  In fact I think it points to a slowing market.

I work in the NYC market (excluding the high end Manhattan condo coop and townhomes that I am not involved in.).  I know that my experience is limited to my area.  However, I believe that it is what most markets are experiencing, excluding the few markets like certain parts of California, Arizona, and Las Vegas, where values went, in 2008, 2009, and 2010 lower than the national average.  Of course it makes sense that values in this area are up more than the national average.

So how does this affect short sales?  It makes them more desirable.  From a Realtors standpoint, the lenders are paying 6% commission for the sale of a short sale, approximately 2% more than the commonly listed home.  For the homeowner, having a short sale can make you have the best home on the market.  For started the home owner has no say over the accepted price, the lender being paid off does.  This inherently means that the short sale is going to priced less than a non short sale transaction.  This makes for a better value opportunity to the buyer.

Please share with me your opinion on this topic.  I can be reached at GSchmidt@SiGold.com.  Or you can simply leave a reply here.

After the Short Sale

A critical part of the Short Sale process is for the sellers to determine where they will go after the closing.  Often times those who do short sales will have latenesses on their credit report that can be an issue when looking for new housing after the short sale, they will have open collections and possibly judgments that are not satisfied, and depending on what debits were forgiven may have tax issues that need to be dealt with.

If you are a realtor and you are taking the listing for the short sale, you should do several things:

  1.        Discuss with the home owners where they will live when the house is sold.
  2.        Run a search to find out any liens on the property and the home owners
  3.        Run a credit report to see what issues will arise when looking for new housing.

Discuss with the home owners where they will live when the house is sold.

After the short sale the home owner and their family will have to move.  Where?  What landlord will agree to rent to someone who just sold their home as a short sale, and 90% of the time have not made a mortgage payment in some time?  Not all landlords are credit report savvy or do they rely on credit reports to be the sole determining factor when deciding to rent to someone.  What a landlord is typically looking for is someone who will pay their rent on time, who will not bother them, and do little to no damage to the unit.  It is with this in mind that a “Tenants Package” should be put together.  This would include the last 4 paystubs for the homeowners, as well as their tax returns.  This supplies the landlord with enough information to determine if the tenant will be able to afford the rent.  In this “Tenants Package” should be a credit report and letter explaining the circumstances to the short sale, and any other derogatory credit.  The homeowner has to sell himself to the landlord and explain why the landlord should rent to him or her.

Run a search to find out any liens on the property and the home owners

I have in my previous blog written on how important it is to determine what liens are against the home and homeowner because they will have to be dealt with in the short sale.  Here, however, I am addressing that there may be liens against the homeowners after the closing that need to be addressed. Some homeowners I know have filed bankruptcy, and others have made payment arrangements.  Regardless of the end goal, the homeowner should speak to a good attorney to discuss their options.  So if you are a realtor, make sure you connect with an attorney you can refer these clients to.  Further they should speak to an accountant about any tax implications of having the debt forgiven.    I have blogged previously about the mortgage and debt relief act, so the mortgage or mortgages will not carry any additional tax burden, but what about the liens and judgments, so make sure you have a good accountant as well.

Run a credit report to see what issues will arise when looking for new housing.

If you have a credit report before you even list the home, you can begin to plan on how to handle the derogatory credit, ie get them removed, get the payments made updated, possible establish new pieces of credit.  Also the homeowner can provide supporting documents for non traditional credit reporting companies such as time shares, fruit of the month, car insurance, cell phone, cable, gas/electric, paying back of a 401 k loan. It is helpful to show the landlord that you can make the rent payments on time and that you have paid other bills on time.

Finding a place for the homeowners to live is critical to completing the short sale.  It is important for all involved to know the sellers have a place to go to, otherwise they may change their mind at the end and never leave, thus destroying all efforts to sell the home as a short sale.  Further the homeowner wants to have a chance to get prepared for looking for a new place to live.  It is my experience that 90% of those selling their home as a short sale are sad, and really don’t want to leave, this home was their great achievement in life, and by giving it up and is saying “I am a failure.”  So the earlier a home owner begins to address these issues the better position they will be in to find where they will want to live.

 

 

 

Lis Pendens: How they effect your short sale.

For those of you who do not know what a Lis Pendens is:

“Latin for “a suit pending,”  [a lis pendens is] a written notice that a lawsuit has been filed which concerns the title to real property or some interest in that real property. The lis pendens (or notice of pending action) is filed with the clerk of the court, certified that it has been filed, and then recorded with the County Recorder. This gives notice to the defendant who owns real estate that there is a claim on the property, and the recording informs the general public (and particularly anyone interested in buying or financing the property) that there is this potential claim against it.”

-          Definition provided by Dictionary.Law.com

A Lis Pendens is filed by a lender or investor when a foreclosure action is going to be started.  So whenever you have a foreclosure, there will also be a lis pendens files.

Should the home NOT be selling as a short sale, the sellers attorney would contact the attorney on the lis pendens to obtain a pay off.  Notice I wrote call the attorney and NOT the lender for the payoff.  However, on a short sale you are dealing with the lender and the lender is going to give you a short sale approval letter that will act as the payoff.

This leads me to a story that inspired me to write this posting.  My friend who is a realtor, experienced in short sales, shared the following with me:

He is the selling agent on a transaction (This means he did not take the listing from the sellers, he brought the buyer to see the home, the buyer liked it, and the buyer made an offer, and the offer was accepted.).  He was told the attorney for the seller is working on negotiating the short sale.  The attorney got the short sale approval letter and the buyer secured the mortgage, a closing was scheduled, and in fact all the parties came to the closing.  At the closing table to banks attorney reviewed the title and said he needs the payoff for the lis pendens.  He was handed the short sale approval letter that had language to the effect it was to be accepted as the final payoff.  Of course the language does not state anything about the lis pendens.  They pulled a copy of the lis pendens and there was an attorney listed.  They called the number and the number was disconnected, it turns out this law firm went out of business.  So the closing had to be adjourned.  The lender was willing to extend the approval letter but needed to order an updated BPO or broker price opinion.  Three weeks later the BPO came in, and the value was $15,000 more than the last one.  Now the bank wants more money and the buyers have walked.

Moral of the story: Make sure that a title search for all liens is preformed early in the process.  Contact the attorney on the lis pendens and let them know a short sale is in the process, and find out what procedure they have to issue a sat or discontinuance of the lis pendens.  My friend lost $12,500 in commission.  A very expensive lesson we can all learn from.

Did this ever happen to you?  Share your experience by leaving a comment.  Or email me at GSchmidt@Sigold.com and tell me your story and what others can learn from it.

For Realtors, knowing when a short sale will not work out.

 

Since the summer is over and we are now heading into the slower months, I am running into more listings where sellers do not have any intention of selling.  The listings I am referring to are the ones listed as short sales.

The name of the game in real estate is to take in as many listings as you can.  Sometimes it means taking a listing that you know is a challenge.  For example the seller may be asking for too much, or there are title issues that can prevent the home from being conveyed without some work and concessions by both the seller and buyer.  We do take these listings for obvious reasons, one of them being a lead generator.  And that is fine.

However I see all too often realtors who took in a short sale listing without realizing the seller does not want to sell, but want to push off the foreclosure process by listing the home.  Honestly I have seen this tactic work.  However it does not help us, the realtor.  It only serves to waste our time and the time of other agents and potential buyers.

It is for this reason I wrote this blog.  I have spoken with many of my friends that are realtors that work on short sales, and I have combined my experience to help a realtor spot a seller who needs to do a short sale but has no intentions of closing, or at least not closing until the last possible moment.

There are several things you can look for so that you know when the seller has no intentions of selling a home as a short sale:

  1. When taking the listing, ask the seller what their plans are.  If they are unsure of what they are going to do, then most likely they are not serious about selling.  A short sale is not like a typical sale where the seller is walking away with money.  They are not getting any money.  Therefore they need a plan of where they are going to move.  It is true that a seller may get money from the lender to move, however you will not know this until you initiate the short sale with the lender.  Then you will find this out.
  2. When taking the listing be sure to get the documents needed to apply for the short sale, ie paystubs, bank statements, utility bill, mortgage statement.  If the seller will not provide you with these documents, they are not serious about completing the short sale.
  3. As mentioned in previous blogs, before you actually put the listing on MLS or advertise the home be sure to get a lien search so you know what is needed to close the deal.  Many of these liens will not accept a small amount inorder to satisfy the lien in full.  They will generally accept a small amount to release the lien on the property.  This means the seller will be responsible for the debt on some of these liens, except for the first mortgage.  Discuss this with them and if they do not want to have any amounts owed, then you are wasting your time trying to sell this home as a short sale.
  4. Get the best day and times for the seller or sellers to show the home.

Being a realtor means that most of your time is wasted.  We often show multi homes to a buyer, solicit new listings, and spend time marketing, all of which often result in no business.  It is therefore more important to know what to look for so you do not waste more of your time on a listing that will not go anywhere.

Mortgage Forgiveness Debt Relief and Debt Cancellation Act set to expire-update 1/2/13: Congress extended it one year.

In each and every short sale the lender is being asked to accept less than the full balance to satisfy the mortgage.  The amount the lender reduces the debt by is actually taxable.

To be clear, if you owe $200,000 and the lender agrees to accept $100,000 to satisfy the debt, the $100,000 that is being forgiven is actually taxable as income.  That’s right, income.  Someone may owe tens of thousands of dollars in taxes to the federal state and local governments.  This amount cannot be discharged in bankruptcy.

In 2007 Congress passed a law, Mortgage Forgiveness Debt Relief and Debt Cancelation Act, which essentially allows this amount to be forgiven and not treated as income.  At the end of 2012 this law expires.

Further, if you go into foreclosure and the home is sold and the amount it sells for is not enough to pay the first mortgage in ful, you will be on the hook for the amount that was not recovered by the lender, and any other lien holder, such as second mortgages, if they settle for less than full balance.  The same goes for credit cards, if you settle for less than the full balance, the amount you did not pay off is income and you have to pay income tax on it…well not for 2012, but if this law is not extended then starting  in 2013 you will.

Please write your congress person and ask them to extend this law.  To find out who your congress person is please click here.

As of the time of writing this blog short sales make up one third of all sales nationwide.  This law allows short sales to be an effective tool in preventing foreclosure actions which in turn has been keeping home prices stable and in some areas the values have increased.  With the most recent Hurricane Sandy damage to the North East, there will be many who have to sell and will not be able to repair their home.  If this law is not extended, not only will they have the stress of losing their home to a natural disaster but they will be also on the hook for potentially tens of thousands of dollars in taxes.

This effects of us all and in these tough times we should extend this another 3 years to give time for the economy to recover.

 

 

Fannie Mae New Short Sale Guidelines:Help Hurt or Do Nothing

In August of 2012 Fannie Me issued new Short Sale guidelines that will become effective November 1 2012.  These guidelines are for mortgages owned by Fannie Mae.  So if a loan is owned by JP Morgan Chase, these guidelines mean nothing.  To determine if Fannie Mae owns the loan on the home being sold, click here.

The objective of the new guidelines is to facilitate the short sale process.  Per the announcement on the fannie mae website:

“Short sales have become an increasingly important tool in preventing foreclosures and stabilizing communities,” said Leslie Peeler, senior vice president, National Servicing Organization, Fannie Mae. “We want to help as many homeowners avoid foreclosure as possible. It is vital that servicers, junior lien holders and mortgage insurers step up to the plate with us. These new guidelines will open doors to help more homeowners qualify for short sales, remove barriers to completing short sales, and make the process more efficient for homeowners and servicers.”

This appears to be good news for those realtors, attorneys, and sellers.  So I took the time to read the guidelines. I  made a list of what I believe are the important points:

  1. Servicers now have the ability to approve a short sale without the written approval from Fannie Mae.  To do this the servicer, the one collecting the monthly payment and managing the escrow account, must meet the conditions of the guidelines (The list of items I have written in this blog.).  This of course appears to be a very good thing, not needing to wait for the investor, in this case Fannie Mae, to issue an approval.  However, there are still a number of requirements that each servicer will want to review twice if not three times to be sure your one individual loan qualifies.  Because if they are wrong, they will have to explain to Fannie Mae why they allowed this short sale, and may possibly be on the hook for a penalty to Fannie Mae.  Dealing with servicers everyday I have learned that they are not inclined to take any risks and will continue to seek written approval from Fannie Mae regardless of this new found freedom.
  2. One of the qualifications required to allow the servicers to issue an approval for a short sale without the written permission from fannie mae is if the person meets the acceptable Forms of hardship.  They are:
    1. Death of a borrower or co borrower on the mortgage
    2. Divorce
    3. Legal separation
    4. Illness
    5. Disability
    6. Reduction of income
    7. Increase in housing expenses
    8. Disaster damage
    9. Business failure

All of these forms of hardship have not changed, they have always been the only acceptable hardships.  However they state, if a seller is more than 90 days late and have a credit score of 620 or less, the proof of the hardship does not need to be supplied.  This is very good as most of the sellers I have worked with in a short sale are late more than 90 days on their mortgage thus have a credit score of much less than 620.

  1. If the seller is 31 days or more late on the mortgage the property can be a primary residence, second home, or investment property.  If it seller is 30 days late or less, or not late at all, it can only be a primary residence.
  2. 4.       The servicer must calculate a monthly expense number for the borrower.  What is important to note here is that if the servicer does not know the amount for the property taxes or the home owners insurance, they are to estimate.  This can work against the seller if the estimation is too low.  Therefore it is very important that when an application for a short sale is submitted to the servicer it include very clearly the accurate amount of the property taxes and the home owners insurance.

With this monthly expenses that will include your mortgage payment, and all debts that appear on a credit report, second mortgages, and certain housing expenses, the servicer will determine, based on the income provided (Your gross income, BEFORE taxes or deductions are taken out of your pay if W-2 income.  If self employed it would be what you are showing on the profit and loss provided.) if your debts are equal to or greater than 55% of your income.  A simple example is if you make $4000 a month and your monthly expenses are $3000, your debts are equal to 75% of your income, the lender would approve this because it is greater than 55%.  However if your income is $4000 a month and your debts are $2000 a month, your debts are equal to 50% of your income, you would not qualify for the short sale unless you are going to make a cash contribution.

  1. The new guidelines provide a formula for determining if the seller will be REQUIRED to make a cash contribution or sign a promissory note in order for the short sale to be approved.  The formula has a few steps:
    1. First,  the Cash Contribution it depends on what assets you have.  If you have more than $10,000 in any type of account, checking, savings, CD, Annuities, retirement savings, mutual funds, stock market account, anything that has a value, OR if the seller has 6 X the monthly mortgage payment that includes the property taxes, home owners insurance, HOA fees, Condo or coop monthly charges, and PMI if applicable, then a cash contribution of 20% of the total cash on hand will be asked for, possibly more, depending on how much assets the seller has.
    2. Second, the Promissory Note.  If the sellers percentage of debt compared to their income as described in number 4 above is less than 55% a formula is used to calculate the cash contribution in the form of a promissory note.  It is rather complicated so for the math geeks out there it is:

First you must get the difference between the percentage of the sellers debts when compared to their income and 55%.  You take this percentage and divide it in half.  This figure, a percentage, is then multiplied against the monthly income.  The figure you get is then multiplied by 60 as in a cash contribution in the form of a Note, that is payable for 60 months or 5 years.  So with numbers:

Sellers debt compared to income ratio is 49%.  We first subtract 49% from 55% and get 6%.  This 6% is multiplied by the monthly income, for example $4000.  This gives $120.  $120 is multiplied by 60 to equal $7200.  $7200 is a note that is paid off in 5 years or 60 months at a rate of $120 per month.

These are the two formulas to use when determining if Fannie Mae will require the seller to make a cash contribution or to sign a promissory note.   I believe this is very helpful as it can used early on in the process to make the seller aware of what may happen so that the sellers can seek out advice and counsel on this issue and determine what is right for them.

  1. The guidelines require that an interior and exterior BPO or appraisal be used for determining the value for a property.  This is very important and positive.  Often times a drive by only is ordered and the real negative to the property is the interior.  This will help in getting BPO’s and Appraisals that are accurate, which can only help more short sales close.
  2. The guidelines state that all subordinate liens will have a total of $6000 from the sales price to be used for subordinate lines.  If the buyer, realtor or someone else wants to come up with the rest of the money to release a lien, no problem.  But Fannie Mae will only allow $6000 from the sales price to be used for this.
  3. Fannie mae has made available to the servicers the Minimum Net they Require (MNR).  It states explicitly in the guidelines that this information should not be shared with any interested parties to the transaction.  This is not new info.  All those working on short sales have seen a property or two (sadly sometimes more.) not close as a short sale, end up as a vacant REO that sold for 40% less than the Short sale we put together.  So there has always been a number that the investor wants and appears to willing to risk getting less.
  4. The new guidelines spell out unacceptable fees that Fannie Mae will not pay for. They include:
    1. Short Sale Negotiation fees or any third party fee for negotiating the short sale.
    2. Any commission to a realtor that represents the buyer.
    3. Buyers discount points or Mortgage Loan Originator fees.
    4. The guidelines also make it clear that a home that is purchased as a short sale and is owned by fannie mae cannot be sold within 30 days of the short sale, or sold for 120% more than what was paid for the home in the short sale if sold within 90 days of the purchase.  This language will be required to be added to the contract of sale.

In my area many times, not all the time but many times, the purchaser of the home is an investor looking to flip the home within 90 days.  This could become a problem with some of my short sales.

  1. If the seller qualifies for the short sale and the seller is NOT receiving any cash incentives from any source, Fannie Mae will give the seller $3000 to relocate.
  2. The guidelines also address the foreclosure process.  It states that the servicer, on a fannie mae owned loan, must review all applications for a payment plan or alternative to a short sale submitted between 75 to 15 days before the foreclosure sale.  This is good because often times the seller is in the middle of a short sale when they are told the home is being auctioned.  Now there is a hard fast rule to look out for this.  However if the servicer receives the request for a work out plan or short sale within 15 days of the auction, they are not required to look at it.
  3. The guidelines also state that when a foreclosure sale date has been set not more than 15 days before and not less than 7 days before this date, a certification of foreclosure that will be required by the attorney holding the foreclosure auction, should not be issued if:
    1. A closing date on a short sale has been agreed to and set up with the approval of Fannie Mae
    2. A repayment plan or short sale application has been received and an offer for a replyment plan or short sale was made by the servicer.

This too is good news because now there is a rule that addresses servicers pushing for the foreclosure when some type of arrangement, whether it be for a short sale or a loan modification, has been made.  They cannot continue and they have to respond in a timely fashion.

In conclusion, of course these guidelines will not make every short sale an easy process.  Certainly there any many good points to these regulations.  The benefit here is that the rules to the playing field are being made known.  Other than the Minimum Net Received mysterious figure mentioned above there are good concrete items to discuss with a seller and that is needed in order for a short sale to be successful.

I provided a link to every document I used to write this blog.  Please take your time to read the guidelines yourself and let me know if there is anything that I left out.  Short sales are gaining momentum as being a good portion of the sales happening today.  It is important to know this information so that you can close more deals, and not waste your time on ones that will never close.  It is also good info for when speaking with a negotiator from the servicer, to know this info and help direct the process.

Who and what is the “investor”?

Many times I hear realtors, sellers, and attorney use the word “Lender” when they really mean investor.

I want to take a minute to explain who the investors are and why are they important to your short sale.

Most lenders give a mortgage to a home owner and then sell the loan, after it closes.  The person or company that buys the mortgage is called the investor.  And they are the ones who make the final decision on the short sale. Lenders, like Bank Of America, do not keep any loans.  They sell every loan to one of the 5000 investors they deal with.  Sometimes the investor can be a large organization like Fannie Mae or Freddie Mac.  And other times it can be a small company you have never heard of.

Each one of these investors has their own guidelines for a short sale.  Further each investor considers each short sale on their own merits and determines how much they are willing to accept as a payoff.  It is for this reason someone may have a smooth short sale transaction, when someone dealing with the same lender, has a hard time and cannot close.  It is because each loan has its own investor.

Is it helpful to know who the investor is on your loan?  It does when it comes to working out a solution to keep you in the home.  For example, if your loan is owned by Fannie mae, they have a program called HARP (Home Affordable Refinance Program.).  This is a special type of refinance loan where the appraised value is unimportant.  If you are not trying to stay in your home, I am not sure what the value is to know who the investor is.

How do these investors make a decision on what to accept for the short sale?  Each investor has their own process.  Some have a clerk gather the paperwork and then a committee of individuals will make a decision.  Sometimes there are strict guidelines that one person has to make a decision based on.  AS far as I know there is no way to determine what each investors requirements are