It is important to understand your servicer and investor guidelines before taking on a short sale
with a 2nd from a smaller local bank or credit union. You may not be able to get there from here.
We were surprised on a couple of short sales in the past two weeks because the servicer for
the 1st note required that the 2nd note holder accept the small approved payout and waive the
remaining deficiencies. Yes you heard right! They required that the 2nd waive deficiencies. As you
know, most smaller banks can’t and don’t waive deficiencies. They often require an additional
cash contribution at closing, an unsecured promissory note for some or all of the deficiency, or
The strict guidelines did not stop there: They also forbade any additional contribution to the 2nd
note holder from any party in an attempt to get the remaining deficiencies waived. I know what
you are thinking….”that is the HAFA guidelines. It must have been submitted under HAFA.” Nope,
this was not a HAFA short sale. Wow, as if it were not difficult enough already.
The only way that we could get around the strict guidelines was to either pay off the 2nd in full
prior to closing or negotiate a separate settlement with the 2nd and complete that settlement prior
to closing. This is not available with all banks nor would it be possible with some of the larger 2nd
notes. So, be nimble on your feet because the sands are always shifting out here.
BB&T will usually not waive the deficiencies in a short sale if they own the loan (if they are servicing the loan then there is a chance that the deficiencies will be forgiven). Like most smaller or regional banks and credit unions, they simply cannot afford to forgive all of the deficiency in a short sale. After all, they are not Fannie Mae.
On a loan owned by BB&T they usually give you three choices, the best of which requires a cash contribution of half the deficient amount. The other options involve a cash contribution and a promissory note. There are a large number of lots out there with BB&T owned mortgages that are now worth a fraction of the mortgage amount, much less the original purchase amount. In a short sale situation there usually is not an opportunity for a good result….unless BB&T offers the property owner a buyout.
BB&T has several types of buyout offers that just show up in the mailbox. We have not been able to obtain a buyout upon request or figure out who gets them and why. However, if you receive a buyout offer in which they are asking for a small fraction of the mortgage amount, take it. Borrow the money if you have to. Sometimes these are associated with short sales but often they do not even require a short sale. If the property owner comes up with the money himself that is fine….and the property owner can actually keep the property. Go BB&T!
As we have discussed before there are new players coming into the loan servicing business.
Additionally, because of new rules and guidelines for banks, some are getting out of the loan
servicing business. When one bank/servicer sells its loan servicing rights to another servicer the
loan is “service released” to the new servicer.
When negotiating a short sale with a bank/servicer, the loan may be service released to another
servicer in the middle of the process. Most of the time this means that you will have to start over
with the new servicer from the beginning….including getting a new BPO. This may be good or this
may be bad, depending upon the initial bank/servicer and how far down the short sale road you
may have gotten.
Hey, that is not fair or logical! Let me just remind you again that fairness and logic have no place in a short sale so let go of those notions when venturing into a short sale. Good luck out there.
I first ran into NationStar a couple of months ago when all of our Aurora loans were serviced-
released to NationStar. That is a fancy way of saying that the files were sent to another servicer
and we now have to start over with them. Well, not only did we have to start over but we had to
supply them with a Title Opinion from an attorney and a BPO (not CMA) from the listing agent.
We had four files that went from Aurora to NationStar at that time. Two of those files were also
in foreclosure. Normally when we have a file that is also in foreclosure, the bank/servicer will
continue with the foreclosure but hold the foreclosure sale off in order to give us time to close the
short sale. Not NationStar. They did not even slow down or even say “excuse me” when they ran
us over on the way to the courthouse steps. These were solid “market priced” offers that we were
well down the short sale road with.
I did a little research and found out that NationStar Mortgage Holding is the 2nd largest nonbank-
mortgage servicer in the US, soon to be the largest. Not only did they take over the majority of
the Aurora Bank (which was part of Lehman Brothers) but they are also taking over mortgage-
servicing-rights (MSRs) from Ally Financial (previously GMAC) and a large number from Bank of
When I heard that some of our files with BOA were being serviced released I thought that the
silver lining was that it would be someone other than BOA. After all, who could be worse than BOA
when it comes to short sales? I think I have an answer. Their name is NationStar.
In a short sale it is always a good idea to close as quickly as possible. Just because you have
an approval letter with a green light to close by a certain date does not mean that things won’t
change. The bank will usually honor the terms of the approval as long as it closes in the given time
frame, but the terms may change if you have to get an extension.
Extension: As an example, I just had a file where we were given almost 60 days to close. In the
world of short sales that is a huge window as it is usually just 30 days. The Buyer was getting
a USDA loan and, of course, it took longer than the allotted 60 day. (note: USDA loans don’t
work well with short sales) All we needed was a one week extension. We got the extension but the
guidelines changed with that servicer since the original approval and the closing costs were
eliminated this time through. We went to the top with this but in the end we were not able to get
the previously approved closing cost back in the deal. The Buyer had to go back to underwriting
and start over without closing costs.
Service Release: Another lurking demon that will upset the apple cart (as well as the Buyer, Seller,
agents and us) is a Service Release. In short, a Service Release is when
the file is moved from one servicer to another. This can be because the note was purchased by
another investor or the service contract was given to another servicer. It doesn’t really matter
why, nor is there anything you can do about it other than start over. It can happen at anytime
and usually comes without warning. We have been three days away from closing and had the file
Service Released to another servicer. Yep, we had to start over from the beginning.
Foreclosure: Lastly, our old nemesis foreclosure is back in full force. There are some new
servicers showing up (Nationstar for instance) whose marching orders seem to be to get this file
to foreclosure as quickly at possible. There has never been a guarantee that the bank would hold
off on the foreclosure sale if there was a short sale offer in the system, but the unwritten rule was
that they would extend the sale date most of the time to allow the short sale to close. Well some of
the servicers did not get the memo. I just had two files where the property sold on the courthouse
steps in the middle of a short sale. Both had solid market price offers and were close to approval.
So the bottom line is that if you have an approval in hand, get to the closing table as quickly as you
Sometimes a reminder is needed about an unfortunate fact that we all have to live with:
The bank drives the bus, not us……not the seller, buyer, agent or attorney. We are asking the bank/investor to take a loss on this loan and for that they get the keys. Our job is to keep everything moving forward and on course but we don’t get any time behind the wheel.
What can we do and what can’t we do to help keep the bus moving and get this offer to closing? We can’t use the argument that they have already received more than the total loss in interest payments over the last 5 years, because it falls on deaf ears. The fact that the bank will receive far less in a foreclosure is one of the main reasons that a short sale is even considered, but we still can’t use it to get anywhere in the negotiations.
What we can do is consistently follow the same important steps with every short sale. This will minimizes the less-than-perfect experiences but it does not eliminate them. If we put a perfect package together, call the negotiator/bank weekly, anticipate the hurdles ahead, respond to document requests quickly and with a good attitude, update the parties, act with respect and patience, escalate the file when necessary, push when required…we will substantially increase our odds of success. We won’t get them all but we will get most of them.
So pack your patience and perseverance in your backpack and pretend you prefer public transportation to the pedestrian way….or just jump on the bus and try to enjoy the ride.
I have already written about the buyer getting the home inspection done earlier instead of later.
The absolute best way to handle the home inspection for a short sale, however, is for the Seller
to get a pre-inspection before putting it on the market…or at least before there is an offer. If the
Seller does not get a pre-inspection then that task is left to the Buyer.
The problem is that even though it makes sense on so many different levels for the buyer to get
the home inspection early (see Blog #4), they still want to wait until the short sale is approved
before paying for an inspection. It is more than annoying to work for several months to get a short
sale approved only to see the buyer walk after they find something in the home inspection that
they don’t like (usually fairly minor). The buyer, seller, both agents and the attorney(s) are all in
exponentially worse positions time and money-wise than they would be had the inspection been
performed earlier and the defect detected. The Seller may even have lost his/her only opportunity
for a short sale and will now face foreclosure….all for $350. Other benefits of a pre-inspection are:
1) The Seller will probably get an offer sooner.
2) The offer may be higher.
3) The Buyer will probably stick around longer and close.
Why? Less anxiety. A short sale has a certain level of anxiety built it because we don’t know if the
lienholder will approve the offer. If the Buyer waits until after the short sale is approved to get the
home inspection, that adds a completely separate source of anxiety….what is the condition of the
house. Why not eliminate that particular piece of anxiety and unknown with a pre-inspection?
I know… the seller does not have any money. Wrong. After hundreds of short sales I can tell you
that this is not usually true, regardless of the price of the house. With the new guidelines of some
banks requiring the Seller to be at least 1 – 3 months late on their loan payments, this argument
holds even less water. This $350 may be the difference between getting a short sale and watching
the house go to the courthouse steps.
The designation of “Short Sale” in the MLS indicates that if a full price offer is brought to the Seller,
there will not be enough proceed at closing to payoff the Sellers mortgage(s). It will be short of a
full payoff. It is notice to all potential Buyers that this will be a contract contingent on obtaining
the third party bank’s approval. Further, it discloses to the potential Buyers that the parties have
to go through this long and often arduous approval process with the bank with no guarantee of
There is another designation, depending upon your MLS, such as “Possible Short Sale.” This
designation or similar indicates that if the Buyer brings a full price offer they may be able to
proceed to closing without going through a short sale. If circumstances change or the offer price
is less than a full price offer, then it is likely to be a short sale. Again, it serves as notice and
disclosure to any potential Buyers considering this property that if it falls into a short sale then the
rules change and the Short Sale Addendum becomes the controlling document.
Be safe and play nice out there.
The answer is, maybe. Before April of this year, this would have been put in the “myth” category. We have handled many files in which the Seller continued making their payments throughout the short sale. However, back in April we had two BOA files and a Wells Fargo file rejected in one week because the seller was not 31 days late. What did that tell me? Fannie Mae and Freddie Mac have a new rule. You now must be 31 days late with a Fannie Mae or Freddie Mac Loan.
Why would the seller want to continue to make payments anyway? For their credit score. They don’t want to have any “lates” on their credit report which would cause their credit score to drop substantially.
What if it is not a Fannie Mae or Freddie Mac loan? Well at this point we have not seen any other Investors requiring the seller to be 31 days late but don’t be surprised if they follow suit sometime down the road.
This should not come as a surprise, but all buyers are not necessarily good candidates for a short sale. The buyer’s agent should qualify their buyer before attempting to take them down the 1 – 4 month path of a short sale. Your time and the listing agent’s time is valuable to be sure. The seller, though, may have the most at stake if there is a pending foreclosure. This may be their last chance to avoid foreclosure so please approach it accordingly.
Who would not be a good candidate for a short sale?
1) Buyer that needs the property date certain. There is nothing certain about a short sale. We usually get the approval letter in 45 – 90 days from when we submit the short sale package but we still don’t want to take a file that has to close in 120 days or less because that will invariably be the exception and take longer.
2) Buyer that needs closing costs. If you have a buyer that absolutely needs closing costs to close you are adding risk to an already risky sale. Some banks/lien holders will not pay any closing costs so you may be asking for something that is impossible. Other banks/lien holders will pay but, if the offer is low, they may cut the closing costs in order to approve the deal.
Along those lines, first-time homebuyers in the lower price points are also a nightmare in short sales. One of the reasons is that nobody in the deal has any funds to bridge even a small gap in what the bank needs and the offer price. Just know you are truly doing pro bono work with a much lower success rate for any property 100k or less.
3) Buyer that comes into the deal making demands. Some buyers think that because it is a buyer’s market they drive the bus in a short sale. I hate to burst their bubble but the 1st lienholder drives this bus and they are merely along for the ride. This demanding buyer who is already talking about walking if….. needs to stay away from short sales. They are just looking for a dramatic exit and will almost always take it. This also wastes everyone’s time. Show them an REO property.
4) Buyer that can’s close in 30 days. The approval letter will usually give the parties around 30 days to close…starting yesterday. We have often been able to get an extension when needed but you don’t want to go in having to have one because they are not always granted. With the release of many of the dormant foreclosures there may not be an opportunity for an extension. For example: don’t try to do a short sale with a USDA loan because you will not close in 30 days…or 60 for that matter.
The bottom line is that you need to be serious about your short sale offers and buyers. It is not low-ball offer time (and never will be) and your buyers need to be serious and qualified before taking on this arduous task called short sale.