As we have discussed previously, a short sale requires a market price offer based on the ‘sold comps’ of that neighborhood. The servicer usually sends a real estate agent to the property to do an interior BPO or an appraiser to do a full appraisal in order to establish the market value of the property.

In August of 2014 I wrote an article about how Fannie Mae and Freddie Mac were moving away from BPO’s in short sales and starting to use more appraisals. They now seem to be doing an about face and marching in the other direction. On several of our most recent Fannie and Freddie files they have only done “drive by” valuations. In other words, a Zestimate from Zillow.com or even worse, a PFA valuation (Pull From Air).

Not unsurprising, some of these “valuations” are on the high end of the sold comp range. We are then forced to request an interior valuation. If they refuse do an interior valuation then we are left with pursuing a Value Challenge with the servicer. Our most recent Value Challenges on these files have seen some success. They require a CMA for the property and any other evidence of property value. I am hoping that the bank/servicers remain reasonable to our input on value in these instances. If they do, it may just mean that the servicers are shifting the burden to the Seller’s side to show market value and thereby saving them the cost of an appraisal or BPO. We will just have to see if this is the way they intend to go for awhile.

In the last several months we have seen a pattern emerge; first with our Freddie Mac files and now, predictably, with our Fannie Mae short sale files.

As you know the requirement for most short sales is that the Seller must be at least 31 days late on the loan payments prior to being able to submit a short sale package. (A VA loan is one of the few exceptions to this rule.) Some Sellers like to try to make as many payments as possible so that they are just 31 days late when the short sale package is first submitted to the bank/servicer. The Sellers do this for three reasons: 1) They simply want to do the right thing; 2) They want their credit score to take as small a hit as possible; and 3) They want to keep a foreclosure from being filed.

In the past, with the Fannie Mae and Freddie Mac loans we almost always got the deficiencies waived in a short sale with no cash contribution from the Seller. Now we are seeing a trend for short sales submitted less than 90 days late. Fannie Mae and Freddie have started to request a promissory note for repayment of the full deficiency balance or a smaller cash contribution from the Seller. The Seller in turn has an opportunity to counter the bank/servicer’s request with a written explanation as to why they can’t pay the requested amount and must inform the bank/servicer the amount that the Seller can offer. At that point the Seller’s offered amount is agreed to by the bank/servicer or the short sale file is closed. There is not much (or often any) back and forth negotiations on that issue.

The reason that this is happening is that if the Seller is only 31 days late instead of 60 – 90 days late, it is presumed to be a “strategic” short sale and not a “hardship” short sale driven by necessity. With that presumption comes extra scrutiny of the Seller’s financial Statement (UBA), hardship letter and tax returns.

We now discuss this trend with the client up front so that they can incorporate this information in their approach to the short sale.

As we discuss in this month’s newsletter, for the past several years BPO’s (Broker Price Opinion) have been the primary method that note servicers/note holders used to establish the short sale property’s market value.  The servicer might have ordered a more expensive appraisal for FHA and higher priced properties, but most of the time it was a BPO.

However, change is in the air.  Over the past several months we have seen more and more appraisers being used at all price levels.  I would recommend showing up prepared as we have discussed but appraisers will probably not need as much information as it is their profession. Still, it’s a good idea to make sure they know any major defects of the property and any mitigating factors of the neighborhood that would affect the property’s market value.

Change is not always a good thing but I would view this as an overall positive step.  The short sale landscape is always changing and it is always better to be on top of the changes and incorporating those changes into your overall approach.  If this change is real and permanent it should make short sales a little easier as the valuation stage should be more accurate and not such a glaring weak link.

The normal short sale with my office usually takes between 45 and 90 days to obtain an approval.  The bank/servicer usually gives the party a 30-day window to close after approval. Some banks/servicers traditionally take longer and some take less time.

Additionally, there are 8 steps to a successful short sale and we complete each step every time we handle a short sale. I feel this is the fastest and surest way to get through the approval process.  I say this because I am going to give timelines that we experience. If certain steps are not completed then the time to completion is longer and the success rate substantially lower.  Our approval rate is 90% or better.

We have completed well over 400 short sales.  The following is an updated list of the primary banks and servicers that we work with on a regular basis and the “time to approval” we are experiencing on a non-FHA short sale.  [FHA short sales are taking longer than a conventional Fannie Mae/Freddie Mac short sale with the same bank/servicer]

Banks:

BOA:  90+ days to complete. (They will try to close the file at any opportunity.)

BB&T:  45 – 90 days to complete.

Chase:  45 – 90 days to complete.

Citi:  45 – 90 days to complete.

Fifth Third:  30 – 45 days to complete.

First Citizens:  30 – 45 days to complete.

Navy Federal Credit Union:  45 – 90 days to complete.

PNC:  45 – 90 days to complete.

SECU:  30 – 45 days to complete.

SunTrust:  45 – 90 days to complete.

US Bank:  120 – 180 days to complete.

Wells Fargo:  45 – 90 days to complete.

1st Bank:  30 – 60 days to complete.

 

Servicers:

Bayview/M&T:  30 – 90 days to complete.

Caliber:  30 – 60 days to complete.

Cartus:  120 -180:  days to complete.

Greentree:  45 – 90 days to complete.

Ocwen:  45 – 90 days to complete. *

PHH:   120 – 180 days to complete.

SLS:  45 – 90 days to complete.

SPS:  45 – 90 days to complete.

Truliant:  30 – 45 days to complete.

NationStar:  120 – 180 days to complete.  *

Quicken:  45 – 90 days to complete.

*It could take at least 45 days longer if the servicer puts property on Auction.com or HubZu.com

So you have your approval letter and now you are running into problems with the Buyer’s government backed loan.  Whenever you take on a short sale an important consideration is the Buyer and the Buyer’s loan.  For example, if the property is in unfit condition and requires some repairs prior to making it livable, the Seller may have to complete the repairs prior to closing or put money in escrow if it is a government backed loan such as USDA, HUD, VA or FHA.  This is probably not going to happen in many short sale situations.  This would be important to know prior to beginning the short sale trek.

Another issue some of these loans are having is delay.  With many of these programs’ administrators furloughed during the recent government shutdown there is now a backlog and probable delay.  The problem in a short sale is that the approval letter usually allows for a 30-day window to close.  It is paramount for the buyer to be proactive in getting everything into their loan officer as quickly as possible and stay vigilant throughout the loan process in order to limit the delays.  If the loan does not close in the time frame allowed in the approval letter then an extension must be obtained.  As we have discussed at length in earlier writing this does not always go well.

Bottom line, know that there is a window given in a short sale to close and be proactive in your efforts to get loan approval in order to close in that window.

So here we are again waiting to see if Congress will extend the 2007 Mortgage Forgiveness Debt Relief Act (Act) for another year. The extension came late last year because of the Fiscal Cliff negotiations. It was finally extended as part of the American Taxpayer Relief Act of 2012 which was enacted January 2, 2013.

Why do we care? Simple….taxes. As you know when deficiencies are forgiven in a short sale by the bank/noteholder, this constitutes a taxable event. The Seller should then receive a 1099 for that amount. The next question is “does the Seller have to pay taxes on that amount?” If it is a Primary Residence (lived in the house two out of the past 5 years) then the Seller should not have to pay taxes on the forgiven amount. They will need to go to their CPA or Tax Attorney and file the right paperwork to invoke their rights under the Act but no tax should be due. The Act, however, does not help a Seller if property sold is not a Primary Residence.

If the Act is not extended into 2014, this could of course have a chilling effect on short sales and possibly the real estate market in general. We still have a huge number of properties that are underwater and need to be moved. If short sales slow down then foreclosures go up.

So let’s cross our fingers, call our Representative in Congress and pray that it is once again extended.

In North Carolina the Short Sale Addendum allows the Buyer the right to unilaterally terminate the contract and receive the earnest money back at any time prior to the Seller notifying the Buyer of lien holder approval. If the parties have negotiated additional time for “due diligence” beyond bank approval then the Buyer has that extra time as well. If, however, the Buyer decides to terminate the Contract or not close on the property after their contractual window of opportunity has past then they do so at their own risk. Not only will they probably lose their earnest money but they may also be looking at a claim for damages. Remember, the seller likely has a foreclosure in the very near future.

The bottom line is that the Buyer has asked a number of professionals, the servicer, the note holder and the Seller to do a great deal of work on their behalf and behest. When all of those parties have successfully obtained a short sale approval the buyer should proceed to closing quickly and quietly. It is now long past the time to jump ship.

Good luck out there.

So according to several whistle blowers that used to work at BOA, it turns out that the BOA reps in the Loss Mitigation Department were paid cash bonuses to shut files down and move them on towards foreclosure.  Shocked?  I’m not.  My staff just smiled and nodded when we read this.  That is because we have seen it first hand for years.  I usually warn an agent or seller that if we are going to attempt a short sale with BOA it will probably be a little frustrating and ugly.

The short sale file is often shut down for no reason by the BOA negotiator.  I have had a negotiator request a document and only give us until ‘end of business’ to get it in “or the file will be closed!”  As is often the case, it was a document that all the parties had to sign and the buyers are out of town on separate trips.  Somehow we managed to get all of the signatures and the document into the negotiator by 5:00 EST (even though she was on PST).   Whew, that was close!  Well, she closed the file anyway.

When a file with BOA is closed there is no appeal.  The only option is to start over. Having handled hundreds of short sales, we are ready for such an event.  We immediately resubmit the short sale and escalate the file to a higher level with an accounting of the unfair treatment to propel the file forward to completion.

The good news is that BOA shenanigans are now out in the open.  The PR department will get involved and deny this as anything other than a rogue element in the lower branches of the company.  The old policy will probably quietly be changed to reflect the more caring and empathetic BOA and maybe, just maybe, the BOA short sale won’t be so ridiculous.  I am not holding my breath though.

 

I know that we have talked about this before but since this is the “Year of Foreclosure,” it warrants an update and reminder.

First of all we should remember that there is no right to a short sale and, by extension, no right to a postponement of the foreclosure sale.  We are essentially asking the bank or servicer to do us a favor and consider this short sale offer instead of selling the property on the upcoming foreclosure date.  We should understand that the bank and the foreclosing attorney have already spent time and money getting into the position to be able to hold the foreclosure auction.

Now that we understand that, what do we do?  We know they are not going to stop a foreclosure sale without a short sale offer.  Can we just send in the offer with any real hope that they will postpone the sale?  No! You must upload or send the offer to the loss mitigation department with the entire short sale package.

Put yourself in the bank’s position.  It’s true that the short sale, if successful, would bring more money than the foreclosure auction and probably REO sale down the road. However, they don’t own this loan. They are merely servicing it most of the time.   The servicer is losing money every month that goes by because the mortgage is not being paid and, therefore, neither is the servicer.

Given that, it is understandable that the bank/servicer requires a short sale offer to come with some assurance that it is a serious offer with a real chance of eventually closing.  Just sending an offer carries no assurance, just desperation.

Timing is also an issue.  If you are trying to stop the foreclosure sale the day before the auction you are not going to be successful most of the time.  It can be done but don’t hold your breath. Most banks/servicers require that the offer and package be received at least 7 to 10 days prior to the sale.  Some even require that the Seller already have approvals from the junior mortgages and liens.  You are getting into “near impossible” territory if you only have a few days until the sale.  So, have a grateful attitude, have a market price offer, send in a complete package with the offer as early as possible.  Good luck out there.

I have heard real estate law described as “happy law.”  That actually makes sense because in a normal real estate closing there may be some bickering over curtains but in the end the buyer is getting the house and the seller is receiving money.

In a short sale, however, it is important to understand that the attorney definitely has one foot over the line into ugly law.  The Seller is losing their house and usually not receiving any money at closing.  Additionally, the Seller may or may not have to pay back the deficiencies.  Yes, the Buyer is getting the house at a really good price but they have to endure the stress of the short sale, which can be long and frustrating.  The bank that owns the mortgage or is servicing the mortgage can be difficult, uncommunicative, uncooperative and just plain nasty.  So even if the short sale attorney is successful in obtaining the short sale and managed results that can only be described as amazing, they shouldn’t expect a fruit basket.  They can end up like the divorce attorney down the street where nobody is happy with them in the end because war is ugly.