Short Sales…Realtors versus Investors…
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To start this post off, I want to disclose that I’m a real estate investor. However, I work with several realtors and investors in regards to short sales. Why should a realtor work with an investor? Why shouldn’t they work with an investor is my question. Are there some shady investors with no knowledge of the short sale and loss mitigation process? Absolutely! What is the ultimate solution for handling short sales that is transparent, legal, and provides the best possible solution to the homeowner?
Realtors and Investors should work together to accomplish the goal of placing a homeowner in the best possible position when facing foreclosure. Why should a realtor work with an investor is the question…It’s an easy answer. No short sale package is complete without an offer, right? Guess who can step in as your buyer and get the short sale process started? Your investor. Realtor s should always make sure the investor can conduct a closing that stands on its own and does not use funds from the resell of the property.
In addition to being your buyer, investors that specialize in short sales usually provide an automated short sale management tool and resources at the agents disposal. How about the ability to pre-negotiate a short sale? The agent usually has to list the property on the MLS and then continue to perform price reductions of 3-5% until they attract a buyer, then begin the short sale. How many buyers stick around for 3-6 months? Not many! I want to state again, a short sale does not start until their is a P&S and proof of funds accompanying the short sale lender specific package. Complete short sale packages get first priority. Working with an investor your short sale can start, in most instances today, instead of waiting 6 months for an offer, then begin negotiating.
Question…do you start negotiating the 2nd mortgage at the same time as the first? If you do, that’s a big no, no! Do you provide a BPO package to the BPO agent when the BPO is conducted? Why not? The agent is usually not of the area and is not familiar with the neighborhood. Don’t believe me? Ask anyone who has done a FHA short.
How about fiduciary responsibility? The listing agent only has fiduciary responsibility to the seller not the lender. This brings up a good question…what is the fiduciary responsibility of the agent? Per Jeff Watson, considered one of the U.S.’s top real estate attorney’s, the following is the fiduciary responsibility of an agent.
Explain to the homeowner what their choices are. This is the first obligation of a Realtor. A real estate agent who chooses to become involved in a distressed property or in a short sale transaction must have adequate knowledge and training to convey all the necessary material information to a homeowner so that the homeowner can make an informed decision about possible choices. The choices facing a homeowner in foreclosure can be separated into four categories.
The first is to remain in the property as a “squatter” using multiple bankruptcy filings until the foreclosure auction occurs and they are evicted. This allows the homeowner to stay in the property for as long as possible for a low cost.
The second option that the homeowner has, which is usually unrealistic, is to list the property for an amount high enough to pay all liens and closing costs in full and pray that some buyer will come along and pay that price. Ultimately, the result is that the homeowner lives in the property without making payments, experiences foreclosure, and then is often confronted with the need of having to file bankruptcy to discharge the personal responsibility of hundreds of thousands of dollars of debt.
The third option and one that is frequently recommended by many traditional real estate agents who do not understand all of the complexities of the short sale world is for the homeowner to list the property seeking a short sale buyer and hope that the short sale buyer has the patience and endurance to wait out the 90 plus day process as the seller(s) or their agent negotiates with the lien holders all of the things necessary to get the short sale approved. The biggest concern and drawback to this approach is that the typical buyer will get frustrated over waiting 90 or more days and focus on another house that is already available. Second and a more insidious concern is that the real estate agent and the seller are not always properly trained and equipped to handle the negotiations with the lender(s). The lender(s) are in the process of seeking to collect a debt and they will use any means at their access to attempt to obtain money and information. Unless the agent is extremely familiar with the entire short sale process as well as the BPO process they can make fundamental or critical errors that will either delay or destroy the short sale process. Many agents assume that deficiencies and seller signed promissory notes post short sale are usual and customary. That assumption is wrong!
The fourth option that can be presented to a homeowner is for the homeowner to list the property seeking a short sale and to work with a competent and knowledgeable investor who seeks to buy the property. In exchange for the investor agreeing to wait the 90 plus days to be able to buy the property the investor assumes the responsibility for negotiating the short sale so that the investor knows where the process is at all times. The investor/buyer may be choosing to keep this property in their own keeper portfolio as a rental property or they may be seeking to quick-turn this property for a profit. The advantage to this approach is that there is a competent, persistent, committed end buyer who has submitted a legitimate arms length contract to the Bank to buy the property. An additional benefit to this strategy is that the investor is knowledgeable about the entire short sale process and understands all the key steps in the negotiation process.
Furthermore, they are able to handle the BPO in a manner that will more likely result in favorable short sale outcome. Few, if any, homeowners realize that during the BPO they should be emphasizing the negative aspects of the distressed property, rather than promoting its benefits, features and attributes. An investor who is aware of how the BPO process works will make sure that the BPO agent has all the necessary information to properly and accurately complete the Fannie Mae BPO form.
When a realtor and investor begin a working relationship it is always important to involve a real estate attorney up front so you can both work through the legalities of the transaction and begin liquidating inventory and making lots of money.
Here are the disclosures that are on the front of my P&S agreement to notify the bank of my intentions. I also present these and a few others to title companies and attorney to get their blessings for my transaction. Enjoy!
• “Any lender/s (lien holder/s) who currently holds a valid
lien against this property, by accepting this purchase
agreement and approving a discount on the debt (short sale),
hereby agrees that they have made an independent evaluation
of the current market value of this property and have
independently decided that the approved short sale amount
is a fair and equitable amount for the payoff and release of said lien.”
• “The offer by purchaser is below fair market value. Further, this
lender/s acknowledges that this buyer will not occupy the property.
This lender/s also acknowledges that the buyer may purchase this
property at the short sale amount, subsequently may or may not
make any necessary repairs (rehab) of the property and sell it at
a significant profit at any time after the closing of this transaction
to a future known or unknown purchaser.”
• Buyer reserves the right to take title to this property at closing
in their Personal Name, Corporate Entity Name or a Land Trust.
This decision will be made at the time of closing at the sole
discretion of the buyer based on negotiations with either a
lender currently holding a lien on the property or the preference
of a future known or unknown lender for a future known or
unknown buyer when this property is sold by this buyer at a
currently undermined time and price.
• SELLER understands that this transaction is a short sale and is contingent upon acceptance by Lien holders of discounts off outstanding balances. Furthermore, Seller will receive NO funds upon closing of the short sale.
Make sure there is an addendum and affidavit of understanding explaining all of the details to the homeowner. I know this doesn’t cover everything on the topic but it’s a start 
Take Care,
Carl
To start this post off, I want to disclose that I’m a real estate investor. However, I work with several realtors and investors in regards to short sales. Why should a realtor work with an investor? Why shouldn’t they work with an investor is my question. Are there some shady investors with no knowledge of the short sale and loss mitigation process? Absolutely! What is the ultimate solution for handling short sales that is transparent, legal, and provides the best possible solution to the homeowner?
Realtors and Investors should work together to accomplish the goal of placing a homeowner in the best possible position when facing foreclosure. Why should a realtor work with an investor is the question…It’s an easy answer. No short sale package is complete without an offer, right? Guess who can step in as your buyer and get the short sale process started? Your investor. Realtor s should always make sure the investor can conduct a closing that stands on its own and does not use funds from the resell of the property.
In addition to being your buyer, investors that specialize in short sales usually provide an automated short sale management tool and resources at the agents disposal. How about the ability to pre-negotiate a short sale? The agent usually has to list the property on the MLS and then continue to perform price reductions of 3-5% until they attract a buyer, then begin the short sale. How many buyers stick around for 3-6 months? Not many! I want to state again, a short sale does not start until their is a P&S and proof of funds accompanying the short sale lender specific package. Complete short sale packages get first priority. Working with an investor your short sale can start, in most instances today, instead of waiting 6 months for an offer, then begin negotiating.
Question…do you start negotiating the 2nd mortgage at the same time as the first? If you do, that’s a big no, no! Do you provide a BPO package to the BPO agent when the BPO is conducted? Why not? The agent is usually not of the area and is not familiar with the neighborhood. Don’t believe me? Ask anyone who has done a FHA short.
How about fiduciary responsibility? The listing agent only has fiduciary responsibility to the seller not the lender. This brings up a good question…what is the fiduciary responsibility of the agent? Per Jeff Watson, considered one of the U.S.’s top real estate attorney’s, the following is the fiduciary responsibility of an agent.
Explain to the homeowner what their choices are. This is the first obligation of a Realtor. A real estate agent who chooses to become involved in a distressed property or in a short sale transaction must have adequate knowledge and training to convey all the necessary material information to a homeowner so that the homeowner can make an informed decision about possible choices. The choices facing a homeowner in foreclosure can be separated into four categories.
The first is to remain in the property as a “squatter” using multiple bankruptcy filings until the foreclosure auction occurs and they are evicted. This allows the homeowner to stay in the property for as long as possible for a low cost.
The second option that the homeowner has, which is usually unrealistic, is to list the property for an amount high enough to pay all liens and closing costs in full and pray that some buyer will come along and pay that price. Ultimately, the result is that the homeowner lives in the property without making payments, experiences foreclosure, and then is often confronted with the need of having to file bankruptcy to discharge the personal responsibility of hundreds of thousands of dollars of debt.
The third option and one that is frequently recommended by many traditional real estate agents who do not understand all of the complexities of the short sale world is for the homeowner to list the property seeking a short sale buyer and hope that the short sale buyer has the patience and endurance to wait out the 90 plus day process as the seller(s) or their agent negotiates with the lien holders all of the things necessary to get the short sale approved. The biggest concern and drawback to this approach is that the typical buyer will get frustrated over waiting 90 or more days and focus on another house that is already available. Second and a more insidious concern is that the real estate agent and the seller are not always properly trained and equipped to handle the negotiations with the lender(s). The lender(s) are in the process of seeking to collect a debt and they will use any means at their access to attempt to obtain money and information. Unless the agent is extremely familiar with the entire short sale process as well as the BPO process they can make fundamental or critical errors that will either delay or destroy the short sale process. Many agents assume that deficiencies and seller signed promissory notes post short sale are usual and customary. That assumption is wrong!
The fourth option that can be presented to a homeowner is for the homeowner to list the property seeking a short sale and to work with a competent and knowledgeable investor who seeks to buy the property. In exchange for the investor agreeing to wait the 90 plus days to be able to buy the property the investor assumes the responsibility for negotiating the short sale so that the investor knows where the process is at all times. The investor/buyer may be choosing to keep this property in their own keeper portfolio as a rental property or they may be seeking to quick-turn this property for a profit. The advantage to this approach is that there is a competent, persistent, committed end buyer who has submitted a legitimate arms length contract to the Bank to buy the property. An additional benefit to this strategy is that the investor is knowledgeable about the entire short sale process and understands all the key steps in the negotiation process.
Furthermore, they are able to handle the BPO in a manner that will more likely result in favorable short sale outcome. Few, if any, homeowners realize that during the BPO they should be emphasizing the negative aspects of the distressed property, rather than promoting its benefits, features and attributes. An investor who is aware of how the BPO process works will make sure that the BPO agent has all the necessary information to properly and accurately complete the Fannie Mae BPO form.
When a realtor and investor begin a working relationship it is always important to involve a real estate attorney up front so you can both work through the legalities of the transaction and begin liquidating inventory and making lots of money.
Here are the disclosures that are on the front of my P&S agreement to notify the bank of my intentions. I also present these and a few others to title companies and attorney to get their blessings for my transaction. Enjoy!
• “Any lender/s (lien holder/s) who currently holds a valid
lien against this property, by accepting this purchase
agreement and approving a discount on the debt (short sale),
hereby agrees that they have made an independent evaluation
of the current market value of this property and have
independently decided that the approved short sale amount
is a fair and equitable amount for the payoff and release of said lien.”
• “The offer by purchaser is below fair market value. Further, this
lender/s acknowledges that this buyer will not occupy the property.
This lender/s also acknowledges that the buyer may purchase this
property at the short sale amount, subsequently may or may not
make any necessary repairs (rehab) of the property and sell it at
a significant profit at any time after the closing of this transaction
to a future known or unknown purchaser.”
• Buyer reserves the right to take title to this property at closing
in their Personal Name, Corporate Entity Name or a Land Trust.
This decision will be made at the time of closing at the sole
discretion of the buyer based on negotiations with either a
lender currently holding a lien on the property or the preference
of a future known or unknown lender for a future known or
unknown buyer when this property is sold by this buyer at a
currently undermined time and price.
• SELLER understands that this transaction is a short sale and is contingent upon acceptance by Lien holders of discounts off outstanding balances. Furthermore, Seller will receive NO funds upon closing of the short sale.
Make sure there is an addendum and affidavit of understanding explaining all of the details to the homeowner. I know this doesn’t cover everything on the topic but it’s a start
Take Care,
Carl
I couldn’t agree more! My only caveat is that agreeing to work with an investor in this regard is usually best accepted by a seller that has ‘run out’ of other options, such as deed in lieu or loan mod.
Working with an investor in this situation is a win-win for everyone involved and I recommend it to any agent or owner that is ready to get serious about short selling their listing/property.
Greatings, Interesting, did you plan to continue this article?
Have a nice day
[url=http://www.nolivefeel.com/]BernieR[/url]
I would like to know how many closing have occured in Las Vegas with the Bank accepting a price more than $60,000 under market value and had no promissory note demand of the seller ….normally the note requested is a percentage of the loss 10% being close the usuual request.
Joan. Thanks for you question.
Nevada is both a Judicial and non Judicial state. For my answer I will base it on the Judicial foreclosure process. In regards to your question it’s not a matter of a dollar amount reduced from the principle amount the determines whether or not there will be a promissory requested. For the bank it comes down to the Total Loss the investor is willing to accept. This number is relevant to the Offer to Net Value (OTV), Offer Gross to Value (OGV) and the Offer to Net total value (NTV). These percentages are the guidelines that the loss mitigator works within when determining the acceptance of the short payoff. (Naming conventions may vary slightly from lender to lender)
Now, I see that your a Realtor. The problem a Realtor faces when trying to negotiate with a bank is the fact when a buyer brings x amount of dollars to the table, you have no room for negotiations, meaning usually the buyer wont provide additional funds to satisfy the bank in order to allow them or motivating them to waive the deficiency demand. Their are a couple of limitations a Realtor faces when working short sales such as how to handle the BPO, structure the offer letter, and the Preliminary HUD-1. These three areas of the short sale can absolutely kill your short sale if handled incorrectly and/or if a person doesn’t understand the in’s and out’s of how they should be handled. Another example would be B of A. An agent really needs to know the tips and tricks of how to handle Equator and B of A deals in order to successfully negotiate.
Lastly, as far as the 10% being a usual request. We see this with 2nds. However, we offer more money to make it disappear. First mortgages, with a few exceptions rarely provide a an approval letter without agreeing to release lien and report the debt as satisfied. The premise of the article is just pointing out that short sales need to be pre-negotiated versus the traditional methodology Realtors normally use of post negotiations. I hope this helps. Let me know if you have further questions.