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October 11, 2010

3 Tips for Negotiating Short Sales

Short sale transactions can be complex to negotiate with lenders. Hence, real estate trainer and educator Kathy Mehringer’s definition of short sales: “A transaction where nothing is certain but for the uncertainty.”

Mehringer, director of risk management for Coldwell Banker Residential Brokerage, Southern California companies, offered tips to negotiating short sales during her session, “Short Sales, REOs and Foreclosures: Still Hot” on Wednesday during the California Association of REALTORS® Expo in Anaheim, Calif.

Mehringer, who often educates real estate professionals on short sales and foreclosures, offered the following negotiation tips at her session:

1. Don’t give up.
When a lender turns down your short sale offer, do not view that as the final answer. Too many real estate professionals assume that a firm “no” from a lender means they’ll never accept a short sale on that home.

“You can’t see ‘no’ as an answer — see it as an opportunity,” Mehringer said.

Follow up by asking the lender: “What will you accept? What can I do to make this offer better?”

Remember, the lender is supposed to get the highest price for the bank; “no’ is merely the beginning of negotiations.

2. Earn their trust.
Lenders don’t always trust real estate professionals when it comes to short sales negotiations. Mehringer has learned the reason for much of their distrust: They believe listing agents put a home on the market for a significantly lower price than what it is worth and then waste their time by submitting a ridiculously low offer and present it as the best possible offer for the home.

“Lenders think you underprice short sales,” Mehringer said. “We need to show them that we are trustworthy and properly demonstrate the value of the property.”

After all, your job when representing a seller — even in a short sale transaction — is to work to get the highest and best possible terms for your seller, she told attendees.

3. Lose the low-level clerk mentality.
Mehringer said that she often hears from real estate professionals that the lender isn’t cooperating. But how is your behavior toward them? Telling the lender such things as “if I don’t have an answer by 5 p.m. today, the buyer will walk” is not going to work in closing a short sale faster but will serve as a turnoff, Mehringer said.

“You will get more by being nice to people,” Mehringer said. “And being nice doesn’t mean that you have to be a push over either.” Always be professional and courteous in your contact with lenders.

Also, realize that a short sale is optional for a lender. “It’s a business decision,” Mehringer said. “A lender may elect to cooperate to save the expense and time of foreclosure … but it’s purely a business decision — it’s an algorithm.”

By Melissa Dittmann Tracey for REALTOR® Magazine online

Worried foreclosure is coming?

LPS Data Shows GSE Foreclosure Starts Are Accelerating

Fannie Mae and Freddie Mac are beginning to initiate foreclosures at a faster pace.

According to a new study from Lender Processing Services (LPS), GSE foreclosure starts have been accelerating and are currently at all-time highs. From May to June, foreclosures initiated by Fannie and Freddie jumped 21 percent.

The GSEs’ prime borrowers are performing the worst. Foreclosure rates among the agencies’ prime loans have soared nearly 400 percent since January 2008, with a notable hastening tracked over the last two months, LPS reports. That increase is second only to the swell seen in non-agency “jumbo” mortgages, for more than $729,750.

LPS says the recent momentum in GSE foreclosure starts coincides with Home Affordable Modification Program (HAMP) cancellations, with most of the volume concentrated in the very late stages of delinquency (six-plus months).

The latest HAMP statistics from the Treasury showed an extremely elevated number of cancellations from trial plans, as many borrowers who received temporary modifications have not been able to verify their income or have missed trial payments.

As of the end of June, 520,814 HAMP trials had been cancelled – more than have been converted to permanent status. In addition, 8,823 permanent modifications have been cancelled under the federal program.

In contrast, LPS says foreclosure starts have remained relatively stable over the last several months for the rest of the industry. The company puts the overall foreclosure rate as of the end of June at 3.65 percent, but notes that foreclosure inventories are still elevated.

According to LPS’ market data, total foreclosure starts for 2010 are at 1,456,000. That stat is lower than 1,682,000 for the same period in 2009, but up from 1,245,000 in the first half of 2008.

Bailout Watchdogs Call Mortgage Program a Bust

 Bailout watchdogs on Wednesday raised a red flag over the Obama administration’s program for helping homeowners avoid foreclosure, saying the multibillion-dollar fund is not working and the Treasury Department refuses to fix it. 

Warning that the inefficiencies could hold the economy back, the officials told a Senate panel that changes should be made and that Treasury needs to come clean. One official called the program “one of the greatest failures in transparency and accountability” in the $700 billion bailout. 

A $50 billion fund was carved out of the Wall Street bailout for the mortgage program. The housing market being a root cause of the 2008 economic crisis, the money was pitched as a way to help millions of homeowners avoid foreclosure and get the economy back on track. 

But a fraction of that money, $248 million, has been spent. 

Elizabeth Warren, chairwoman of the congressional TARP Oversight Panel, said that for every one family that wins a permanent mortgage modification, “10 more have been moved out through foreclosure.” 

“This is a program that’s just — it’s behind the curve,” she told the panel on Wednesday. 

Special inspector general for the financial bailouts Neil Barofsky said the program has not “put an appreciable dent in foreclosure filings” during the Senate Finance Committee hearing on the $700 billion bank bailout. He also said the Treasury Department has ignored earlier demands that it set clearer goals for the program.  A Treasury official said Wednesday that the bailout program has had “a major effect on the ability of people to stay in their homes.” The official argued that before the program was launched, it was not designed to prevent all foreclosures and not designed to help investors or speculators — or those with vacation homes or million-dollar homes.

More foreclosures could force down home prices and further hurt the ailing housing industry. 

Part of the problem with the Home Affordable Modification Program has been that plenty of homeowners are being accepted into a trial period, but relatively few are having their loan changes made permanent. Warren said just 165,000 have moved into permanent modifications with help from the TARP program, though more than that have advanced through a similar program administered by Fannie Mae and Freddie Mac. 

Barofsky said Treasury is giving mortgage companies too much leeway to decide which homeowners will qualify for a program to reduce the principal balance of their mortgages

The program relies on voluntary cooperation from mortgage companies, Warren said. She said many of the mortgage debt collectors make more money when they foreclose than they do when helping homeowners. 

“We can’t have a program in which, in effect, we put incentives on the table paid for by the taxpayers to say, ‘Please do the right thing here,'” she said. “We have a crisis, and the consequences of not having cooperation from the servicers … (is) felt by this entire economy . We need a program with far more urgency and some real teeth in it.” 

Article contributed by Fox News

 

Good News and Bad News: Fannie & Freddie’s HAFA Short Sale Program Just Announced

Recently, Tim Burrell updated his blog to discuss Fannie Mae and Freddie Mac’s versions of HAFA.  This blog post can be read below:

“At the REO CON summit, the short sale presentation discussed how Fannie Mae and Freddie Mac loans were exempt from the HAFA short sale program that was put into effect by the Treasury on April 5, 2010.  Fannie Mae has just created its own version of HAFA with regulations that you can find at http://shortsalesr.us/FannieMaeHAFA.pdf.  Similarly, Freddie Mac has created its version of HAFA with regulations you can read at http://shortsalesr.us/FreddieMacHAFA.pdf.

Does this addition to HAFA make Realtors happy?  In general, the terms are similar to the Treasury’s short sale program that is supposed to expedite the review and approval of short sales by pre-approving the seller for the short sale and establishing the amount the lender will accept at the time the Short Sale Agreement (SSA) is entered into.  In other words, you qualify the seller and get the amount needed from the sale at the time you list the property.  However, there is a difference with Fannie and Freddie.  With the Treasury’s program, the lender considering the short payoff may tell the Realtor how much they will settle for.  For those of you who do a lot of short sales, they will specify the amount they want to be paid at closing as shown on line 504 of the HUD.

In the Fannie and Freddie program, the servicer is prohibited from telling the seller, buyer and Realtor what this amount is.  Instead, the servicer will establish an asking price based on the condition of the market in the area.  Who is better at setting an asking price: (1) the Realtor who works there every day or (2) a Loss Mitigation negotiator with files from all over America?  When the contract is submitted, you hope that this asking price results in the Minimum Acceptable Net Proceeds (MANP).  If you do HAFA short sales, you have to love the acronyms 🙂 .

Having the Broker Price Opinion or appraisal already done at the time the offer is presented is a benefit, and the servicer does not tell the Realtor what they will accept as net proceeds in most of the non-HAFA short sales (except for FHA short sales where you know to the penny).  So, in this manner the program gives a benefit of the BPO already being done and the same result as the old fashioned short sale where you play “guess again” on the amount the lender wants.  But, it could have been better if Fannie and Freddie followed the Treasury’s lead.

The other bad news is that the servicer tells the Realtor how to market the property, and supervises the marketing plan.  Again, who knows better what will work (1) the Realtor who has developed an effective program or (2) the loss mitigation negotiator who just took the HAFA training course.   The guidelines mandate that the marketing program includes ” a “For Sale” sign, Multiple Listing Service(s), flyers, print ads, open houses as well as appropriate usage of the internet;”  Few will argue with a for sale sign and putting it in the MLS, but open houses work less than 2% of the time according to NAR statistics.  Print ads have dramatically fallen because they are not that effective.  However, if you want to comply with the Short Sale Agreement you will do these things, because the agreement can be cancelled if you violate it.

Another problem is that a seller cannot be considered for a Fannie or Freddie HAFA short sale if a foreclosure is pending that could sell the property in 60 days, or if the state laws would allow a foreclosure in the next 60 days.  States like Texas can go from a dead start to a full foreclosure in less than 60 days, so does that mean you cannot do a Fannie or Freddie HAFA short sale in those states?

There are some great benefits.  The servicer must respond to an offer within 10 business days.  That beats the months of waiting we do now.  The servicer must allow at least 45 days to close the sale after approval, with a maximum of 60 days.  Also the foreclosure must be postponed during the sale period, which is at least 120 days.

The financial incentives are similar. The seller gets $3,000 in moving assistance.  The servicer gets more under Fannie and Freddie than the Treasury by receiving $2,200 for an approved short sale, as opposed to $1,500 for the Treasury.

So, like everything else in short sales, there is some good news and some bad news.  But, at least there is a program that provides some tools that a savvy Realtor can use to help a borrower in trouble.

If you need an encyclopedia of information on short sales, go to www.CreateAShortSale.com  and for the complete  Fannie Mae guidelines go to http://shortsalesr.us/FannieMaeHAFA.pdf and for the Freddie Mac guidelines go to http://shortsalesr.us/FreddieMacHAFA.pdf.

I hope this helps.

Tim Burrell

www.ShortSaleNegotiatingSpecialist.com

Raleigh, NC 919-812-5111″

2010: The Year of the Short Sale

Charlotte Short Sale makes for a good Charlotte Real Estate InvestmentA Charlotte Short Sale is getting easier to purchase. According to RealtyTrac, 2010 is going to be the year of the short sale due to the large number of pre-foreclosure properties on the market. It is estimated that one in four US homeowners owe more than their home is worth. Now could be a good time to consider purchasing (or selling) a short sale as future home prices are expected to increase 9-12% in 2011. Simply put, this could be a great time to buy a Charlotte Real Estate Investment.

One of the biggest challenges in a short sale has been the time it takes to close a transaction. The challenge in completing a Charlotte short sale has been twofold: 1) getting the buyer and seller to agree and 2) getting the bank on board to agree to sell the home for less than the purchase price (and thus take a loss on its loan). It can be especially hard motivating a bank to sell if you do not have experience negotiating with banks.

But our team is beginning to see turn-around times decrease in a Charlotte short sale transaction.  Communication with banks has improved, and so has the technology involved in processing short sales. A new technology platform called Equator has been rolled out by banks to facilitate processing of paperwork involved in a short sale transaction.

Also, banks are beginning to see that a short sale is in their interest. The bank makes on average 30% more from a short sale when compared to a foreclosure. An added bonus in a short sale is the condition of the property. Charlotte foreclosure homes are often trashed and subject to vandalism since these properties have been abandoned, but a short sale home is often occupied by the owners until the closing.

Banks are responding quickly to offers due to enhanced technology, but banks are also more receptive lately to aggressive offers from buyers as the number of homeowners underwater increases. Also, the implementation of HAFA (Home Affordability Modification Program) has provided incentives to the sellers, buyers, and the banks that will make a Charlotte short sale smoother.

Given that the market is finally moving in the direction of buyers, you may want to consider a short sale, especially in a Top 10 Market like Charlotte.