C.A.R News line came out with an article yesterday stating that the Senior Vice President of CITI Mortgage, the mortgage servicing arm of Citigroup, has announced they will be offering borrowers an average $12,000 in incentives to complete a short sale. CITI has a little over 16% of delinquent loans in a short sale program. Adding that has increased from 4% from 2 years ago.
In 2009, CITI offered an average of $1500 to qualified borrowers. In 2010, CITI increased incentives between $3000 and $5000. Present day, $12,000 for 2011.
Not only has CITI reached out to the borrowers instead of waiting for the borrowers situation to get worse and get them involved in their short sale program; Increased the amount of money at the close of escrow to help borrowers get back on their feet, they have also streamlined there short sale process. In 2009 the process was an average of 120 days from the listing to close. The average turn time in 2011 is 83 days.
I wanted to lay this out for those who did not read the article and explain how some of this can be misunderstood and can cause one to give misleading information to the borrowers but in the same return, may be a great way to encourage a borrower to take action.
As a short sale negotiator I see a lot of different programs out there banks are trying to implement. But keep in mind that there is still a pre qualification process.
To ensure the following:
a) Borrower is eligible to be in the short sale program
b) Receives the $12,000 incentive
c) Turn time of 83 days
The following needs to take place:
1. Borrower has to be pre qualified and fit the parameters of a short sale with proper expectations set.
2. Short sale has to meet the NET requirements the bank is looking for.
3. Have a complete short sale package submitted with all applicable documents.
The banks have definitely been pro active in completing short sales however, the deal still needs to makes sense. If you do not have a qualified borrower, that will kill the deal right away. The bank has a certain NET in mind. If you cannot meet the net requirements with the offer you submit, a listing history is necessary to negotiate with the bank. If you submit a short sale package that is in complete how successful do you think you will be getting an approval in 83 days if the bank is constantly tracking down documents, fighting the value of your offer or questioning your clients hardship? The goal is to streamline your own process before it hits the negotiators desk at the bank. This will help you achieve what you want in the time you want.
These incentives are a great way to encourage borrowers to take action and get involved in the short sale program but it is important that you do not over promise and under deliver. We preach about this a lot at Lotus Realty Group. I get a lot of calls about these types of incentives from borrowers and it becomes apparent very quickly that they do not understand the process in which it takes to get them there. And it all starts with asking the right questions and Pre Qualifying.
Extra Tip:
Before marking your calendar from 83 days to start, please keep in mind that if you do not follow the suggestions in this blog you will most likely run into longer time frames. Here is a typical time line:
1. File submitted
2. 7-10 days to upload into the system
3. 2-3 weeks processing time
4. Order BPO
5. 7-10 days for BPO to be submitted and assigned to a negotiator
6. Negotiator can take anywhere from 2-4 weeks to negotiate the file
7. Submit to the investor for final approval
8. Investor can take anywhere from 1-3 weeks ( plus or minus)
(Quote) You can't move so fast that you try to change [a situation] faster than people can accept it. That doesn't mean you do nothing, but it means that you do the things that need to be done according to priority.
“Eleanor Roosevelt”
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.
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
Thursday, June 30, 2011
Thursday, June 23, 2011
Who is a potential candidate for a short sale?
There are three types of homeowners that are candidates for short sales. Each one has its set of expectations and guidelines. It is important to determine which type you are dealing with so you are able to set the proper expectations up front and determine if this is a listing you want to take on. As each will have their own set of battles you will want to choose your battles wisely.
The first type of homeowner is one who has a true hardship and has become delinquent on their mortgage. They have had a change in income or lost their job all together. There may be a divorce or illness. There may be significant damage to the property and they are unable to repair it back to a livable condition. This homeowner has very little or NO money in the bank and may be living off their credit cards which are close to being maxed out. Due to their delinquencies they are already in foreclosure status and a sale date is approaching. This homeowner could be experiencing one or more of these hardships or all of them. Sounds like they could use some help, yeah?
This type is a no brainer. The homeowner will have a lot of questions and concerns. They will need a Real Estate Professional to guide them through the process.
Here are some important things to do while on your listing appointment:
1. Ask all the right questions. You still need to pre qualify them and get all the key pieces of information to help you while negotiating with the bank.
2. Bring your short sale package with you. Go through the short sale package with them and explain the importance of filling it out properly and gathering all the applicable documents.
3. Bring your listing agreement. Have in place the set listing price and 3 price reductions. The financial institutions like to see the home listed within 24-48hrs of taking the listing.
4. Set proper expectations in regards to timelines, the importance of getting requested documents over to you as soon as possible and the possibility of the bank asking for a small cash contribution or new promissory note. The possibility of a contribution request from a homeowner who has a genuine hardship and has NO money is not likely but it is possible. It is negotiable but you do not want your client to have any surprises. This lessens their anxiety level and they will definitely appreciate that.
5. Advise them to speak with a Real Estate Attorney and a CPA for any questions pertaining to deficiency and tax ramifications.
6. If the sale date is a week or two away and the homeowner is 12 months or greater delinquent on their mortgage, you may not be able to help this homeowner.
The second candidate is the homeowner that has not missed a payment yet but knows they are headed that way due to the downturn in the economy. They can see the train coming and want to get off before the impact hits. This homeowner does have some money in savings but it is dwindling down slowly due to having to draw from it every month to cover their bills. They may have some other assets. They may have to take a job in a different location that promises to pay more and for that reason they have to leave. The home cannot be sold traditionally due to the declining values in the neighborhood and they owe much more than the home is worth. I can appreciate these circumstances.
This type is also a no brainer. These circumstances are still considered a hardship and will give you a good argument when negotiating with the bank.
Consider this:
This home owner is NOT delinquent so you are not fighting against foreclosure timelines. Make sure you are marketing this property for a substantial amount of time to show the bank a listing history.
The third type you will run into is the home owner that is NOT delinquent and CAN afford to make their payment along with all of their other monthly bills and have a nice surplus left over. They have a nice checking and savings account. They may have other properties that are cash flowing. The main reason for wanting to short sale is because he or she owes more than the home is worth and they want out. This type is tricky. The bank may or may not work with this type.
Here are some important things to consider BEFORE taking this listing:
1. Clearly this is not a traditional homeowner in foreclosure status.
2. The bank may approve this short sale but it will most likely be on the following terms:
a) The bank may ask for a cash contribution. The amount requested will most likely be more than it would be for a homeowner with a true hardship.
b) The bank may ask for a new promissory note. This may be anywhere between $10,000 to $40,000.
c) The bank may ask for both.
What you want to determine is if the homeowner is willing to do A, B, or C. If they are not willing to do any of them you may not want to take the listing. You will only be wasting your time.
We are not just pre qualifying homeowners on paper but we also want to feel their level of cooperation. If they are not willing to do what it takes to get the job done everyone will lose in the end.
Extra Tip
You cannot give advice on tax ramifications. You need to direct them to a CPA but after evaluating all three sets of circumstances, which type of candidate would MOST LIKELY experience tax ramifications?? Think about it.
(Quote) Working hard and working smart sometimes can be two different things.
Byron Dorgan
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.
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
The first type of homeowner is one who has a true hardship and has become delinquent on their mortgage. They have had a change in income or lost their job all together. There may be a divorce or illness. There may be significant damage to the property and they are unable to repair it back to a livable condition. This homeowner has very little or NO money in the bank and may be living off their credit cards which are close to being maxed out. Due to their delinquencies they are already in foreclosure status and a sale date is approaching. This homeowner could be experiencing one or more of these hardships or all of them. Sounds like they could use some help, yeah?
This type is a no brainer. The homeowner will have a lot of questions and concerns. They will need a Real Estate Professional to guide them through the process.
Here are some important things to do while on your listing appointment:
1. Ask all the right questions. You still need to pre qualify them and get all the key pieces of information to help you while negotiating with the bank.
2. Bring your short sale package with you. Go through the short sale package with them and explain the importance of filling it out properly and gathering all the applicable documents.
3. Bring your listing agreement. Have in place the set listing price and 3 price reductions. The financial institutions like to see the home listed within 24-48hrs of taking the listing.
4. Set proper expectations in regards to timelines, the importance of getting requested documents over to you as soon as possible and the possibility of the bank asking for a small cash contribution or new promissory note. The possibility of a contribution request from a homeowner who has a genuine hardship and has NO money is not likely but it is possible. It is negotiable but you do not want your client to have any surprises. This lessens their anxiety level and they will definitely appreciate that.
5. Advise them to speak with a Real Estate Attorney and a CPA for any questions pertaining to deficiency and tax ramifications.
6. If the sale date is a week or two away and the homeowner is 12 months or greater delinquent on their mortgage, you may not be able to help this homeowner.
The second candidate is the homeowner that has not missed a payment yet but knows they are headed that way due to the downturn in the economy. They can see the train coming and want to get off before the impact hits. This homeowner does have some money in savings but it is dwindling down slowly due to having to draw from it every month to cover their bills. They may have some other assets. They may have to take a job in a different location that promises to pay more and for that reason they have to leave. The home cannot be sold traditionally due to the declining values in the neighborhood and they owe much more than the home is worth. I can appreciate these circumstances.
This type is also a no brainer. These circumstances are still considered a hardship and will give you a good argument when negotiating with the bank.
Consider this:
This home owner is NOT delinquent so you are not fighting against foreclosure timelines. Make sure you are marketing this property for a substantial amount of time to show the bank a listing history.
The third type you will run into is the home owner that is NOT delinquent and CAN afford to make their payment along with all of their other monthly bills and have a nice surplus left over. They have a nice checking and savings account. They may have other properties that are cash flowing. The main reason for wanting to short sale is because he or she owes more than the home is worth and they want out. This type is tricky. The bank may or may not work with this type.
Here are some important things to consider BEFORE taking this listing:
1. Clearly this is not a traditional homeowner in foreclosure status.
2. The bank may approve this short sale but it will most likely be on the following terms:
a) The bank may ask for a cash contribution. The amount requested will most likely be more than it would be for a homeowner with a true hardship.
b) The bank may ask for a new promissory note. This may be anywhere between $10,000 to $40,000.
c) The bank may ask for both.
What you want to determine is if the homeowner is willing to do A, B, or C. If they are not willing to do any of them you may not want to take the listing. You will only be wasting your time.
We are not just pre qualifying homeowners on paper but we also want to feel their level of cooperation. If they are not willing to do what it takes to get the job done everyone will lose in the end.
Extra Tip
You cannot give advice on tax ramifications. You need to direct them to a CPA but after evaluating all three sets of circumstances, which type of candidate would MOST LIKELY experience tax ramifications?? Think about it.
(Quote) Working hard and working smart sometimes can be two different things.
Byron Dorgan
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.
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
Thursday, June 2, 2011
Important Q&A in a Short Sale transaction
I was recently asked by the AREAA foundation to be one of speakers on a short sale panel with a few other short sale negotiators and two attorneys one in which is my Real Estate attorney and friend David Bright. Many of you know and respect him. Those of you who do know him understand along with my company Lotus Realty Group that we are very passionate about educating REALTORS on all facets of the short sale market.
I wanted to share with you some of the questions that REALTORS were inquiring about and give you some of the feedback David and I shared with the group.
1. In regards to a homeowner’s financials, what should we not submit? Do we not show the stocks, bonds, 401k, and checking accounts with large balances?
I want to remind you of what a true hardship is.
a) Change in income due to a pay cut
b) Job loss
c) Divorce
d) Illness
e) Insurmountable damages to the property
If we have a true hardship most likely there will not be huge balances in a checking account or stocks and bonds that are worth much so there is nothing to worry about as you have pre qualified your seller and asked all the right questions. If you have a situation where your homeowner does have stocks and bonds, etc. I would not hide that from the lender. If you do there is a good chance they will find out anyway and you will kill your chances. For example: If your client does not list his assets properly and some are showing on his tax returns as residual income then clearly the lender will question why it was not listed on his or her expense sheet. You want a clean proposal. What I would do is set proper expectation with your client. Explain that the short sale lender may ask for a cash contribution or a new promissory note at a lesser amount. Personally if a homeowner in this situation is not willing to contribute when there financials clearly shows they can, I would not take that on.
2. Can a short sale lender make the homeowner draw from their 401k to pay down there principal balance?
No, they are not allowed to force a homeowner to draw from their 401k however; it will be one of the determining factors when considering the ability to contribute a cash contribution or new promissory note.
3. What do you do when the 2nd lien holder wants more money than the 1st lien holder will allow and the 1st will not allow any other parties to contribute?
It has been my experience that the offer that you submit is going to be one of the determining factors in that decision. I would first make sure you have a strong listing on the property so you have all of your data to support your value. If you submit to low of an offer the 1st lien holder most likely will not be very gracious. 2nd lien holders typically want 10% of the balance.
If you have done this properly and you still cannot get the 1st to cover the full amount the 2nd is requiring then some STRONG negotiating is necessary. You can always go back to the first and argue to at least allow other parties to contribute. At that point, buyers and agent’s may have to come together to make it work. My suggestion would be to set expectation upfront with the homeowner and the buyer that money may need to be brought to the table. This will save REALTORS from pulling from their commissions.
4. Would it be okay to offer 1.5 to 2%% to a buyer’s agent in the MLS on one of my listings especially if I have to pay a negotiator fee?
Well, you can offer whatever you want but this could be very problematic in a couple different ways:
a) The idea is to get agents to bring clients to your listings. If you offer to low of a commission split you may steer buyer’s agents elsewhere. Is it worth that risk in this market?
b) In regards to the negotiator fee you can do it a couple different ways. You can put 2.5% to the buyer’s agent and 3.5 % to the listing agent but you may still run into the issue of buyers agents taking their buyers elsewhere. I always offer 3% on my personal listings. I would simply have a conversation with the buyer’s agent and see if they would be willing to split the negotiator fee with you. I have REALTORS who are very successful in doing that. The idea is not to focus on an l% negotiator fee if you are outsourcing. It is hard to prospect and get listings and do all the negotiating yourself. I have tried it. It is nearly impossible to fully serve your clients this way. Get 30 short sales in your pipeline where you are closing 2-3 listings monthly and I guarantee you the 1% to a negotiator will not be that big of an issue as the negotiator will allow you to focus on getting more listings and expanding your business, close deals and give your clients the best customer service possible.
5. Can I ask for 10% commissions to be granted from the short sale lender?
Short sale lenders are paying out 5-6% in commissions. I have never seen a short sale lender approve that high and quite honestly you do not want to start out the process frustrating the negotiator at the bank.
Extra Tip:
In the confidential remarks I would put the following verbiage:
All lender commissions are subject to lender approval. Any commissions below 6% are to be split 50/50 between agents.
There is no doubt that there are many techniques out there on how to negotiate and put short sale transactions together. My personal experience is that it is an art. A strategic approach with so many moving parts that it is imperative that we are structured, organized and have the proper legal counsel to ensure integrity and ethics for all parties involved.
I have done a lot of growing up in this business. Personally and professionally and I have not done it perfectly. One of the most valuable lessons I have learned recently is we cannot let how others are operating affect you and how you do business or how we show up in life in general. I always know when I am out of alignment. It has an effect on everyone around me. It is easy to get caught up in the currents of life and other affairs.
Insanity, doing the same thing over and over again and expecting a different result. Well, unfortunately many of us learn the hard way but as for me it is much easier and less painful to stay centered in what I know to be the most effective way. The easier and softer way. Everyone around will benefit from that. In a short sale transaction, doing what I know works and not veering off that path will only help to remain effective and efficient.
(Quote) Life brings what it brings. I might be young but I've learnt this: prepare for each blind corner with your strongest shoulder dropped, ready to smash through whatever is thrown at you next. Once the dust clears you will be standing tall, a champion, and a victor. NOTHING will be able to knock you down once you've taken the biggest hits this life has to offer, so come on life, BRING IT!"
Adam Johnson
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.
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
I wanted to share with you some of the questions that REALTORS were inquiring about and give you some of the feedback David and I shared with the group.
1. In regards to a homeowner’s financials, what should we not submit? Do we not show the stocks, bonds, 401k, and checking accounts with large balances?
I want to remind you of what a true hardship is.
a) Change in income due to a pay cut
b) Job loss
c) Divorce
d) Illness
e) Insurmountable damages to the property
If we have a true hardship most likely there will not be huge balances in a checking account or stocks and bonds that are worth much so there is nothing to worry about as you have pre qualified your seller and asked all the right questions. If you have a situation where your homeowner does have stocks and bonds, etc. I would not hide that from the lender. If you do there is a good chance they will find out anyway and you will kill your chances. For example: If your client does not list his assets properly and some are showing on his tax returns as residual income then clearly the lender will question why it was not listed on his or her expense sheet. You want a clean proposal. What I would do is set proper expectation with your client. Explain that the short sale lender may ask for a cash contribution or a new promissory note at a lesser amount. Personally if a homeowner in this situation is not willing to contribute when there financials clearly shows they can, I would not take that on.
2. Can a short sale lender make the homeowner draw from their 401k to pay down there principal balance?
No, they are not allowed to force a homeowner to draw from their 401k however; it will be one of the determining factors when considering the ability to contribute a cash contribution or new promissory note.
3. What do you do when the 2nd lien holder wants more money than the 1st lien holder will allow and the 1st will not allow any other parties to contribute?
It has been my experience that the offer that you submit is going to be one of the determining factors in that decision. I would first make sure you have a strong listing on the property so you have all of your data to support your value. If you submit to low of an offer the 1st lien holder most likely will not be very gracious. 2nd lien holders typically want 10% of the balance.
If you have done this properly and you still cannot get the 1st to cover the full amount the 2nd is requiring then some STRONG negotiating is necessary. You can always go back to the first and argue to at least allow other parties to contribute. At that point, buyers and agent’s may have to come together to make it work. My suggestion would be to set expectation upfront with the homeowner and the buyer that money may need to be brought to the table. This will save REALTORS from pulling from their commissions.
4. Would it be okay to offer 1.5 to 2%% to a buyer’s agent in the MLS on one of my listings especially if I have to pay a negotiator fee?
Well, you can offer whatever you want but this could be very problematic in a couple different ways:
a) The idea is to get agents to bring clients to your listings. If you offer to low of a commission split you may steer buyer’s agents elsewhere. Is it worth that risk in this market?
b) In regards to the negotiator fee you can do it a couple different ways. You can put 2.5% to the buyer’s agent and 3.5 % to the listing agent but you may still run into the issue of buyers agents taking their buyers elsewhere. I always offer 3% on my personal listings. I would simply have a conversation with the buyer’s agent and see if they would be willing to split the negotiator fee with you. I have REALTORS who are very successful in doing that. The idea is not to focus on an l% negotiator fee if you are outsourcing. It is hard to prospect and get listings and do all the negotiating yourself. I have tried it. It is nearly impossible to fully serve your clients this way. Get 30 short sales in your pipeline where you are closing 2-3 listings monthly and I guarantee you the 1% to a negotiator will not be that big of an issue as the negotiator will allow you to focus on getting more listings and expanding your business, close deals and give your clients the best customer service possible.
5. Can I ask for 10% commissions to be granted from the short sale lender?
Short sale lenders are paying out 5-6% in commissions. I have never seen a short sale lender approve that high and quite honestly you do not want to start out the process frustrating the negotiator at the bank.
Extra Tip:
In the confidential remarks I would put the following verbiage:
All lender commissions are subject to lender approval. Any commissions below 6% are to be split 50/50 between agents.
There is no doubt that there are many techniques out there on how to negotiate and put short sale transactions together. My personal experience is that it is an art. A strategic approach with so many moving parts that it is imperative that we are structured, organized and have the proper legal counsel to ensure integrity and ethics for all parties involved.
I have done a lot of growing up in this business. Personally and professionally and I have not done it perfectly. One of the most valuable lessons I have learned recently is we cannot let how others are operating affect you and how you do business or how we show up in life in general. I always know when I am out of alignment. It has an effect on everyone around me. It is easy to get caught up in the currents of life and other affairs.
Insanity, doing the same thing over and over again and expecting a different result. Well, unfortunately many of us learn the hard way but as for me it is much easier and less painful to stay centered in what I know to be the most effective way. The easier and softer way. Everyone around will benefit from that. In a short sale transaction, doing what I know works and not veering off that path will only help to remain effective and efficient.
(Quote) Life brings what it brings. I might be young but I've learnt this: prepare for each blind corner with your strongest shoulder dropped, ready to smash through whatever is thrown at you next. Once the dust clears you will be standing tall, a champion, and a victor. NOTHING will be able to knock you down once you've taken the biggest hits this life has to offer, so come on life, BRING IT!"
Adam Johnson
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.
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
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