New Short Sale Rules to Consider in 2011

By Cari Droulet

Lotus Realty Group-

With one out of five borrowers underwater on their home and an estimated 1.5 million foreclosures scheduled for 2011, the opportunity for short sales will be better than ever. Banks usually see a 20-30% better execution price on a short sale versus an REO sale. With the foreclosure volume and current and pending REO inventories, servicers will be pressed to do more short sales in 2011.

I have done a lot of research into how Banks will be handling short sales this year. It is no secret that when short sales first hit the market there was not a lot of knowledge from REALTORS, homeowners or Banks on how to effectively handle a short sale. Learning has been through trial and error. Each bank has different guidelines and these are changing constantly. In this environment it is critical to know what type of deal to take, and how to properly put a short sale package together.

The good news is lenders are making an effort to minimize the time it takes to close the transaction but in return they will be tightening up their guidelines and will expect all of us to abide those rules if we want to be successful. 

Here are some rules to consider this year:

Some of the major Banks including Bank of America, Wells Fargo, Chase and Wachovia will be implementing the following:

·        There will be no postponements of Trustee Sales and NO extensions of closings on Short Sale approvals past the approval date. They all want to clean out their inventory as quickly as possible.

·        Banks have put systems in place to speed up the short sale approvals.  Wachovia has cut their paperwork to 13 pages and will send a representative with the agent to meet the seller and will provide an approval within 14 days. They are also paying a 6% commission.  (I have a transaction with Wachovia right now and it has been moving faster than most.)

·        Do not call them the “lender” – they were the lender when they made the loan but once the homeowner went into default, they became “Debt Settlement Companies” on the loan. This adds a new perspective to the homeowner that feels that they can stay in the property forever without paying.

·        They are not paying attorney fees to attorneys that the borrower has hired to fight the foreclosure. If it shows up on the HUD it will be removed.

·        They are not paying third party negotiator fees.

·        These companies are willing to work with REALTORS who truly have their client and the bank’s best interest in mind.

·        They are paying extra attention to offers that are two low.

With these guidelines in place it is important to make sure that we have the following before submitting a short sale:

A)  A qualified seller

B)   A listing history

C)  A qualified and committed buyer

D)  A complete short sale package with all applicable documents

E)   A solid proposal (HUD)

I believe that short sales are going to be massive this year and with the Banks finally tightening up and creating better systems and incentives, short sales are going to close much faster.

REALTORS, what is in your business plan this year? What are you doing to create a system that will allow you to build your short sale business? How often are you out there prospecting and how do you know if you are taking the listings that are going to be successful and not a waste of your time?

Call us today and let us show you a system that works to help you expand your business and effectively and efficiently close short sale transactions.

 PROFESSIONAL SHORT SALE NEGOTIATORS 

Call today to find out how Lotus Realty Group can assist you in closing your short sale transactions or go to WWW.LotusRealtyGroup.com

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Cari Drolet - Founder
Lotus Realty Group

Certified Distressed Property Expert

400 S. Sierra Ave. Ste. 102
Solana Beach, CA 92075
(858) 764-7300 P.
(858) 755-7544 F.
(760) 707-3072 C.
Cari@LotusRealtyGroup.com
www.LotusRealtyGroup.com

Full Discharge of Indebtedness On First Trust Deeds

Here's another great stolen post from my friend Cari Drolet at the Lotus Realty Group. Call her if you'd like help getting your short sales closed in 2011.

Full Discharge of Indebtedness On First Trust Deeds

I am sure most of you are aware of the law that was passed effective January 1, 2011 which states the following:

(a)   No judgment shall be rendered for any deficiency under a note secured by a first deed of trust or first mortgage for a dwelling of not more than four units, in any case where the trustor or mortgagor sells the dwelling for less than the remaining amount of indebtedness due at the time of the sale with the written consent of the holder of the first deed of trust or first mortgage. Written consent of the holder of the first deed of trust or first mortgage to that sale shall obligate that holder to accept the sale proceeds as full payment and to fully discharge the remaining amount of the indebtedness on the first deed of trust or mortgage.

(b)   If the trustor or mortgagor commits either fraud with respect to the sale of, or with respect to the real property that secures the first deed of trust or first mortgage, this section shall not limit the ability of the holder of the first trust deed or first mortgage to seek damages and use existing rights and remedies against the trustor or mortgagor or any third party for fraud or waste.

(c)    This shall not apply if the trustor or mortgagor is a corporation or political subdivision of the state.

Does this apply to Second Trust Deeds?

The answer is Simply NO.

Does this include investment properties?

It appears to include investment property when dealing with quote, a dwelling of not more than 4 units. There is no reference in this statute to owner occupied property.

What incentive does a homeowner have to do a short sale?

I have been asked this question a lot and the answer is still the same. A foreclosure will impact a homeowner’s credit far more and for far longer than a short sale. Furthermore, a home owner who is foreclosed on will not be eligible for a Fanny Mae or Freddie Mac backed loan for 5 years. This increases to 7 years if it is an investment property and it stays on their credit report for the same amount of time. With the right credit recovery program you can help turn your client back into a home buyer again in 18-24 months. Granted, you will get the angry homeowner who does not care anymore but I believe with the right delivery, you can help your client see the value in a short sale. Foreclosure is much more damaging to our economy which is already in dire need of repair. I also believe a short sale shows good faith and integrity to the lenders instead of the homeowner just walking away. However, the homeowner should always seek the advice of an attorney and CPA before making the ultimate decision to Short Sale or Foreclose.

How can we ensure that our client is released from full liability?

We will always encounter situations where laws and guidelines are not being followed properly. With the volume the lenders have on their plates in regards to short sales and foreclosures, there is no guarantee that there will not be a mistake made along the way due to the negligence of one or more of the parties and the homeowner could suffer the consequences. Here are some helpful tips moving forward:

1.      Read the TERM SHEET (Approval) thoroughly.

2.      The verbiage you are looking for is still the same “Released from liability of the NOTE” and any deficiency following the short sale.

3.      If the term sheet only states the borrower is released from liability of the lien, then understand that this is not the same as a release from liability under the note and from a deficiency after the short sale. 

4. Please recommend to the homeowner to have the term sheet reviewed by an attorney and CPA before the homeowner accepts or rejects the term sheet.

This is just an extra precaution that will give you and your client a peace of mind

Please note that Lotus Realty Group does not give legal advice. Please seek advice from an attorney and CPA before providing this information to your clients.

Again, I would like to extend my gratitude to all of our REALTOR clients who have allowed Lotus Realty Group to expedite and close your short sale transactions and assist you in growing your business. It is my belief that this will be a massive year for short sales and I look forward to working with all of you in 2011.

 To your success!!!!

 (Quote) A promise is a cloud; fulfillment is rain.  ~Arabian Proverb

PROFESSIONAL SHORT SALE NEGOTIATORS 

 At Lotus Realty GROUP, helping people ethically succeed is at the forefront of who we are...

Call today to find out how Lotus Realty Group can assist you in closing your short sale transactions or go to WWW.LotusRealtyGroup.com

---

Cari Drolet - Founder
Lotus Realty Group

Certified Distressed Property Expert

400 S. Sierra Ave. Ste. 102
Solana Beach, CA 92075
(858) 764-7300 P.
(858) 755-7544 F.
(760) 707-3072 C. Cari@LotusRealtyGroup.com www.LotusRealtyGroup.com

Follow my blog: http://wwwlotusrealtygroupcom.blogspot.com/

Seller Contributions

 Thanks to my friend Cari at Lotus Realty Group for her awesome articles which I love to post with her permission here from time to time. She and her team have a great reputation managing and closing your short sale files...give her a call. 

LOTUS REALTY GROUP

Seller Contributions

We are seeing more and more lenders asking for either a cash contribution or a new promissory note if they feel that the homeowner does not have a strong enough hardship and see in the homeowner’s financial s the ability to contribute.

 Here is the issue we are repeatedly running into.  The lender will ask for a cash contribution or new note. When the REALTOR presents the terms to the homeowner the homeowner is upset and the answer out of the gate is no or, if the homeowner will contribute to show good faith, it is usually a number that will offend the lender. Once the lender declines the offer the REALTORS scramble to come up with money from other sources which is usually out of their commission. OUCH! That doesn’t feel good.

It has been my experience that setting the proper expectations upfront at the listing appointment with a client will ensure that most problems are manageable. A thoroughly qualified client and your know how should allow you to rationally deal with the issues at hand.  Whether it is good or bad news they will be prepared and you will know upfront whether the homeowner’s offer is realistically going to satisfy the lender.

How does the lender decide what the contribution will be?

Typically the lender will expect up to 30% of their loss.  For example if the bank is writing off $50,000 then they will want a note for $15,000. We are seeing promissory notes between $10,000 -$20,000, 0% payable over a 5, 10 or 15 year period. Occasionally they will add an interest rate however I have only seen that once this year.

Can this be negotiated down?

It depends on the situation. If you take on a client where the hardship is not that strong, there is money in the bank and assets showing an ability to contribute then there is a high probability that the homeowner will have to contribute something to show good faith and close the deal.

If you have a client who is right on the edge then it may be negotiable. We have successfully reduced the amount requested by the bank in both of these cases however banks are getting tougher with their guidelines. To ensure fewer complications in the short sale process, again, set expectations up front with your client.

The times we do not see contributions countered by lenders is when we have a traditional short sale with a a true hardship a) insolvency b) change in income  and c) financial s are showing NO ability to contribute.

The other key is to have the right offer.

Rule of the thumb to decrease your chances of a contribution counter from the lender:

a)    Qualify your client (ask the right questions) and make sure they qualify.

b)    Set expectations. They may or may not have the ability to contribute however, make sure that your client understands that a contribution is a possibility and find out how much they can give to show good faith and if they would be willing to sign a new promissory note.  Calculate the loss the lender will take and multiply this number by 30%. This will give you an idea of what the bank may request.  Tell your client about this up front and start educating them so that when the time comes they are prepared to work with you.  The closer their offer is to that number the more likely it is that your deal will close.

c)     Whatever offer you bring to the table, if you can keep it between 90-95% of what’s owed on the property it may lessen the chance that the lender will ask for a contribution.

How does it help my client to contribute?

If a homeowner has the ability to show some good faith it gives them more of a chance to be released from the full liability of the note.  In other words they will not be pursued for deficiency judgment.  It will also give them a far higher chance for success.

How do I stop paying fees out of my commissions?

Simply take the deals that make sense.  Structure these deals properly from the beginning and set the proper expectations with sellers AND buyers. Sellers should be paying seller contributions and BUYERS should be paying additional liens on the property. PERIOD. And this can be accomplished by?

-       Setting expectations!!

Tip of the week:

It is not our job to make our clients happy. I see REALTORS make the mistake due to wanting a listing so badly or wanting to impress the homeowner that they will only tell the homeowner what they feel  the homeowner wants to hear.  The homeowner doesn’t think it’s our job to make them happy. We are the only ones that feel it is our job to make everyone happy.  They feel it is our job to tell them the truth and help them sell their house. Don’t tell them what they want to hear, tell them what they need to hear. Come from an authentic place. Make sure they know exactly what will happen next or what could happen next (play by play) and you will only gain their trust and confidence.

(Quote) The very essence of leadership is its purpose. And the purpose of leadership is to accomplish a task. That is what leadership does–and what it does is more important than what it is or how it works.
~Colonel Dandridge M. Malone

lOTUS rEALTY gROUP 

PROFESSIONAL SHORT SALE NEGOTIATORS 

At Lotus Realty GROUP, helping people ethically succeed is at the forefront of who we are...

Call today to find out how Lotus Realty Group can assist you in closing your short sale transactions or go to WWW.LotusRealtyGroup.com

---

Cari Drolet - Founder
Lotus Realty Group

Certified Distressed Property Expert

400 S. Sierra Ave. Ste. 102
Solana Beach, CA 92075
(858) 764-7300 P.
(858) 755-7544 F.
(760) 707-3072 C.
Cari@LotusRealtyGroup.com
www.LotusRealtyGroup.com

Does The Foreclosure Moratorium Affect Short Sales?

 You more than likely have heard that many banks nationwide are placing a moratorium on foreclosures while they and the government work out the legal issues in judicial states*. I have had a lot of inquiries in regards to short sales. The number one concern REALTORS have is does this affect short sales and how does it affect those that are currently in the negotiation process with the banks?

Of course when the moratorium was announced this was one of my concerns as well.  I have done a lot of research and made a lot of phone calls to all the banks that we work with (Chase, Bank of America, GMAC, Wells Fargo, CITI Group, Wachovia and other banks) that may be participating in the foreclosure moratorium and the answer is NO.

Foreclosures and short sales are two different processes used by a bank to complete a similar outcome.   However, since the short sale is initiated by the home owner and NOT the bank and does not involve a legal process, short sales will not be affected.  In fact, due to the frustration that the moratorium places on those who want to be out of their home quickly, we may see more short sales on the market. 

This moratorium is not surprising. The banks are overwhelmed with the high volume of transactions and will continue to be unless they have the systems in place and properly trained employees ready to handle this volume. What is more disappointing is knowing that many homes could have been saved if the paperwork was read thoroughly and processed accordingly . This is not okay. This only frightens homeowners and stops them from reaching out for help. Who can they trust? Maybe some of these homeowners could have been processed as a short sale if they had the right real estate professional to guide them.

 * California is a non- judicial state however to date, Bank of America is the only lender that has extended its foreclosure moratorium to California, where the vast majority of foreclosures are conducted without a court order.

How can I do my part as a Real Estate professional?

I believe short sales are still the best alternative to avoid foreclosure for homeowners that simply cannot qualify for a loan modification. Here are some tips that will help you moving forward:

a)      Arm yourself with the most up to date short sale information so that you are able to give informed answers to questions that a homeowner in pre-foreclosure might have. Homeowners need someone to tell them what to do. They need to know all the options available to them.

b)     Gain their trust. LISTEN to them. Offer them some hope. Offer to help them find a rental and get them enrolled in a credit recovery program at the end of the transaction. This will make them feel that you truly have their best interest in mind and are here to help them achieve their goals.

c)      Have them talk to a Real Estate attorney and a CPA to understand the tax ramifications and possibility of a deficiency judgment. 

d)     Make sure your client has been thoroughly pre-qualified and have all your documents collected and paperwork completed with no holes.

e)      Actively list the property creating a listing history to support the value of the offer.

f)       Submit a complete package and follow up tenaciously.

It is our job to ensure proper procedure has been followed and all paperwork is true and complete. Whoever is on the other end at the bank may not be looking as deeply into your transaction as you are and therefore not giving you a fair chance to negotiate the transaction, so the goal is to know your transaction inside and out and educate the person receiving it at the bank.

I believe if we can do our part and help as many people as we can in their time of need we will persevere under any set of circumstances.

(Quote) "All of the great leaders have had one characteristic in common: it was the willingness to confront unequivocally the major anxiety of their people in their time. This, and not much else, is the essence of leadership." --John Kenneth Galbraith

LOTUS REALTY GROUP

PROFESSIONAL SHORT SALE NEGOTIATORS 

At Lotus Realty GROUP, helping people ethically succeed is at the forefront of who we are...

Call today to find out how Lotus Realty Group can assist you in closing your short sale transactions or go to WWW.LotusRealtyGroup.com

---

Getting Listings With Post Cards and Door Hangers

Here's a link to the call you've all been waiting so patiently for. The best way to view is to copy and paste the link into your browser bar.




http://www.bigupload.com/files/DUSXFJ7OK8/getlstings.wmv.zip.html

Short Sales: Let the Agent Beware

If a  transaction is a short sale, the real estate agent handling the sale might  be liable to the buyer if that fact is not disclosed up front. This week a  California Court of Appeal issued a decision which imposes a duty upon a  seller’s agent to disclose that the seller’s existing loans far exceed the  contract purchase price. Holmes v. Summer, __ Cal.App.4th. ___  (2010 Daily Journal D.A.R. 15614) (filed October 6, 2010).  In this case the seller’s agent listed for sale  a residential property for $749,000. The property was subject to three  deeds of trust totaling debts of $1,140,000, thus the sale would have to  be a “short sale.” No disclosure of the existing loan amounts were made in  the MLS listing or to the buyer prior to executing the purchase  contract. The purchase contract provided that the buyer  would purchase the property free and clear of any liens. After entering  into the contract the buyer sold the buyer’s existing home in order to  purchase the property. The seller was not able to get the three lenders to  agree to a 35% reduction in the existing loans, and then defaulted on the  obligation to sell the property free and clear of liens. Instead of suing  the seller for a breach of the contract and failure to disclose the  problem with the loans up front, the buyer sued the seller’s agent. The  trial court surmised that the seller was broke and thus the buyer went  after the agent’s “deep pockets.” The trial court dismissed the buyer’s case,  holding that the agent had no duty to disclose the loan information. The  Court of Appeal reversed that decision. It held that in this instance the  listing agent had a duty to disclose to the buyer the existence of deeds  of trust of record and the extent to which the property was “underwater.”  Furthermore, the disclosure had to be made before the buyer signed the  purchase contract. The Court of Appeal indicated that where there was such  a substantial over encumbrance of the property “there is a duty on that  agent or broker to disclose the state of affairs to the buyer, so the  buyer can make an informed choice whether or not to enter into the  transaction that has a considerable risk of failure.” This conflicts with another duty of real estate  agents, i.e., the duty not to disclose clients’ confidential information.  The court stated that both the “duty to disclose and the duty to maintain  client confidentiality is clearly involved [in this case].” The court  opined that deeds of trust, being in the public record, are not  “confidential information” and that the basic duty of an agent to treat  each party to the transaction “honestly and fairly” trumps the agent’s  duty of confidentiality to the seller. To avoid the conflict, the court  suggested the agent must obtain the seller’s permission to disclose such  confidential information to a buyer before the buyer enters into a  contract to purchase the property. Otherwise, the agent would be  proceeding at his or her own “peril of liability in the event the  transaction goes awry due to the undisclosed risks involved.” This case involved facts about existing loans  that made a short sale extremely unlikely to succeed. What if the loans  were smaller? What if there were fewer lenders? What if the seller has a  pending divorce or bankruptcy? Is a listing agent required to disclose  such confidential information to the buyer? This decision might open the  floodgates to other claims against listing agents for failure to disclose  confidential information about a seller’s financial situation or other  relevant circumstances that might make it difficult for the seller to  consummate the sale. It is going to be important for agents to carefully  assess the risks and rewards when selling distressed properties, and to  beware of this disclosure obligation. For additional assistance in this area of  law please feel free to contact us:
Luce Forward's Real Estate Transactions  Group. <http://contactus.luce.com/rs/ct.aspx?ct=24F76918D0AE4EE0CCD189A9D629981991B04C81E0B42EEC7AC6476C5FCEFD35E9412>     Joseph S.  Stuart
Partner
949.732.3711
jstuart@luce.com
Attorney Bio <http://contactus.luce.com/rs/ct.aspx?ct=24F76918D0AE4EE0CCD189A9D629981991A84693E9A135EB6FC743414AC65>  Robert J.  Bell
Partner
619.699.2533
rbell@luce.com  

Attorney Bio <http://contactus.luce.com/rs/ct.aspx?ct=24F76918D0AE4EE0CCD189A9D629981991B04682E9A329FA7EDE4E4FA>  Real  Estate Transactions <http://contactus.luce.com/rs/ct.aspx?ct=24F76918D0AE4EE0CCD189A9D629981991B04C81E0B42EEC7AC647474CDBE73FFB5E0B89D0C407994>  Printer-Friendly  PDF Version <http://contactus.luce.com/rs/ct.aspx?ct=24F76918D0AE4EE0CCD189A9D629981991B1418FFEA52EF977D7516C4EDEEF309> 

B of A halts foreclosure sales in all 50 states

(Re-blogged - this article was written by Kathleen Pender)

Bank of America has decided to temporarily halt foreclosure sales in all 50 states.
In a statement, spokeswoman Dan Frahm said, "Bank of America has extended our review of foreclosure documents to all 50 states. We will stop foreclosure sales until our assessment has been satisfactorily completed. Our ongoing assessment shows the basis for our past foreclosure decisions is accurate. We continue to serve the interests of our customers, investors and communities. Providing solutions for distressed homeowners remains our primary focus."

A spokeswoman elaborated that BofA will continue the foreclosure process on delinquent borrowers, but will not proceed to judgment or with a foreclosure sale at this time. Foreclosure sales scheduled for Saturday, Oct. 9 or later will be stopped and rescheduled at a later date. The bank estimates it will begin rescheduling foreclosure sales on Nov. 1 or earlier.

BofA was one of three banks, along with GMAC Mortgage and JPMorgan Chase, that halted certain forclosure activities in 23 states where foreclosures are handled in court. The banks made the move after it came out in testimony and depositions that some of their employees had "robo-signed" court documents they hadn't really read.

California, where most foreclosures are handled out of court, was not among the 23 states. However, Attorney General Jerry Brown had called on Chase and GMAC (part of Ally Financial) to stop foreclosing on homes in California unless they can immediately prove they are complying with a state law that requires them to try to contact borrowers to discuss modifications and other alternatives before foreclosing.

California Assembly member Ted Lieu, D-Torrance, this week called on the two state agencies that oversee banks (the Department of Corporations and the Department of Financial Institutions) to impose a 60-day moratorium on foreclosures so that they can investigate whether lenders in California are following that law and another that requires them to have and follow a modification plan.
This week, House speaker Nancy Pelosi and other California Democrats wrote a letter to U.S. Attorney General Eric Holder and others asking them to investigate to investigate "possible violations of law or regulations by financial institutions in their handling of delinquent mofigages, mortgage modifications, and foreclosures."

Some real estate experts say a foreclosure moratorium could cause home prices to rise temporarily as foreclosed homes, which are usually priced at a discount to homes not in foreclosure, are taken off the market.

"In the short term it will keep foreclosures from happening," and that could create an "artificial" boost in prices, says G.U. Kruger, chief economist with HousingEcon.com. But it also could "prolong the malaise" in the real estate market, says Brad Kemp, director of regional research at Beacon Economics.

Consumer groups have come out in favor of a nationwide moratorium to make sure that homeowners are not forced out of their homes based on faulty paperwork. Consumers Union said today that "lenders and servicers should be required to stop all foreclosures until they can demonstrate compliance with all laws, regulations, contract guidelines, and stated internal policies, related to foreclosure, loan modifications, and other forms of foreclosure avoidance."

For more on the subject, see my Tuesday column here.
Posted By: Kathleen Pender (Email) | October 08 2010 at 10:17 AM

Listed Under: Banking, Debt, Housing, Real estate

Read more: http://www.sfgate.com/cgi-bin/blogs/pender/detail?entry_id=74136&tsp=1#ixzz124UFCuy7