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I was asked by an agent if there was available an explanation for their seller and buyer clients to read that will help them understand the short sale process.

So…I wrote one.

It is available to any of you who want it. Just send me an email to info@LawsonGroupMediation.com and request

“Short Sale Process for clients”

and I will attach it to the reply email.

Ken

I blogged about the need to understand liability. Now I will present the disclosures that should be in your written disclosure that your clients should sign. In future blogs, I will present liability traps even with the disclosures, and finally to understand liability itself.

Let’s take it from the perspective of what clients will claim in order to attempt to hold you liable.

Complaint: “I didn’t know that a loan modification was available. You pressured me to do the short sale. Now, it was rejected and we’ve lost everything! It’s all your fault!

“But”, you say, “I told them all about their alternatives to foreclosure.” It is critical that you have a separate document, entitled Alternatives to Foreclosure, and that you go over each one with them and make certain they understand each item. Then have them sign that they understand and agree that the short sale is the only acceptable alternative for their situation.

Complaint: “You assured me that the short sale would be approved!”

Yes, I know that is a lie. Prove it’s a lie with a disclosure document that says there is not guarantee that the lender will approve the short sale.

Complaint: “You didn’t tell me that after the sale, the IRS will tax me for the dificiency!”

Although there is a current tax act that prevents the taxable event for most homeowners who sell their home in a short sale, some people will still incur a tax liability. Make sure your disclosure document contains a provision that there may be a tax event if they receive forgiveness of the balance of the debt, but only a licensed or certified tax professional can tell them if any such forgiveness will be a taxable event for that seller. It should also include that it is their responsibility to determine how that will affect them, and that they are advised to seek the advice of a tax professional.

Complaint: “I thought you knew the law! You are supposed to protect my legal interests in this sale!”

Make certain your disclosure includes that you are not a tax professional or attorney, and that you cannot give them tax or legal advice. Further that if they should obtain seek and attorney or tax professional if they need that advice.

Complaint: “Hey, there is a judgment on my credit report, and you said that won’t happen!”

First, in a mortgage state, the final court order of judgment is the actual foreclosure. The later sheriff’s sale is seizure of the property. In trust deed states, the trustee sale may be followed by a judgment for deficiency.

Normally, we include in the proposal the request for the lender to dismiss any foreclosure suit, rescind any judgement of foreclosure they may have taken, and dismiss the case. Make certain that you have in your disclosure document that you cannot guarantee that there will be no foreclosure, that there will not be a judgment, nor can you guarantee that the short sale will not negatively impact their credit.

Complaint: “You didn’t tell me that people would find out we’re in financial trouble!”

Listing the property in the MLS is itself an exposure of the sellers’ negative financial condition. Also, at the end, if the lender requires a promissory note, the buyers will likely have to know those conditions.

Make certain your disclosure document provides for their consent to release their negative condition and other information as necessary to complete the short sale.

Complaint: “The buyers backed out? The contract was not binding? That is your responsibility! You should have made sure they could not get out of it!”

There are valid reasons for each side why the purchase contract should be an absolutely binding agreement or not. There is a full discussion of this in our book. Some states even require the contract to be nonbinding. If the purchase contracts will be easy to back out of, then you should have your clients sign a binding contract waiver. We have this agreement in our Short Sale Business Manual.

Complaint: “I showed my clients your listing, and you agreed to pay a 3.5% BAC. Now you are telling me that the lender will only agree to the short sale if we agents accept a broker commission reduction? No way! You will agree to the sale, but you will pay me the full commission!”

Our book outlines how to prevent this from happening while still seeking the maximum commission. We regularly get full commissions for the agents working with us, and we have strategies to prevent the servicing lender from reducing them. However, some SMI’s have written policies and even federal regulations that sometimes will reduce commissions somewhat, although some are relaxing this. However, If you do not ask for the full commission, you cannot get it. Our strategies provide for full commission, and we have a commission modification agreement for both agents to sign to agree in advance to how you will handle any required commission reduction.

Complaint: “My stupid clients! They are turning into monsters! They are so controlling and they will not produce what we need when we need it!” This is driving me crazy!”

This is not a complaint from the clients, but from you! LOL! The reality is that some clients are terrible to work with, with no sign of this when you both signed the contract. We provide a termination agreement that is an addendum to the listing contract. It is written so that when you go over it with them, it will help them to understand their responsibilities, your responsibilities, and their boundaries they must maintain. This agreement helps them to not be a problem in the first place, and if they do violate it, you can walk away. This has worked amazingly well with the agents working with us. It is found in our publications.

Complaint: “Oh, that buyer agent is driving me crazy! Calling me every day, making demands, complaining about how long it’s taking, questioning my competency, I’m getting sick of this!”

Ohhhh, that’s you? I wish had a dollar for each time… The problem? The other agent just does not understand short sales likely. Some people are just plain jerks, but sometimes jerk behavior is brought about by a lack of knowledge or understanding. We provide a buyer packet that explains the process and helps them to understand what is happening. For the cases we mediate, we provide weekly updates that help this as well. The approach we take has been very successful, and has taken a lot of stress out of the process.

Well, I hope that has been helpful. In my next blog, I will go over the liability situations that disclosures will not prevent, but I will help you to understand and solve them effectively.

Need help?

We provide training, coaching, and mediation

Our training is centered around two publications that we published:

Short Sales & Loan Modifications: A Practical Guide For Real Estate Agents and Investors

Short Sale Business Manual

The second publication is a companion to the other book and provides all of the disclosures, forms and guideliness referenced in the book, along with samples of proposals.

If we can be of service to you, please let us know.

A lot of people think that just because they have E&O insurance, they are fully protected from liability. Not so!

First, there are many lawsuits across the country involving short sales and loan modifications. They are on the increase. If you are sued, it will cost your time, and time away from your business is money. It will cause you stress, and stress shortens your life span according to the experts. It will cost you your reputation, because a lawsuit is public.

A lawsuit, if you are found liable, could cost you more than the amount of liability coverage you have. Then, you have to pay the balance of the judgment.

Some of the lawsuits have found agents liable, and the E&O refused to pay, because the activities of short sales, particularly negotiating with lenders, were not activities covered for real estate agents. So, just check with your insurance agent to make certain all of your activities are covered.

Even if the insurance covers you, a judgment affects your personal credit. Wow! That is a big impact. Think about what that would do to you.

The best way to handle liability is to prevent it in the first place. It is rather easy to do. Legal disclosures go a long way to prevent anyone from suing you, and from having a judgment rendered against you if they do sue.

Every agent needs to understand liability. We have a complete chapter devoted to liability in our book. There are other sources that you can learn about liability as well, ours is only one source among many. Disclosures and knowledge are the keys you can use to prevent someone from holding you liable.

Our other book, the Short Sale Business Manual, contains the disclosures that are so important, but that is only one source. You can find disclosures from other sources as well, or you can have an attorney draft them for you.

Do I want you to buy our materials? Well, I hope you do, but there are other sources of disclosures as well. It is more important that you gain knowledge and protection from any source, whether from us or others. Most of the others sources will likely provide you with the protection you need.

There are, however, some areas of liability that disclosures will not protect you from. They include the sheriff’s sale date that gets missed when you did not know about it in the first place. Not having a binding contract waiver from the seller. A buyer’s agent who gets angry at you for a commission reduction. Disclosing that you cannot guarantee approval but being a postive thinker. These are areas where court cases have held agents liable. There are ways to avoid them and it is important to educate yourself.

Common sense is a great shield from potential liability. Common sense will guide you to disclose, disclose, disclose. The problem comes in when people lie and claim you did not disclose. That is where signed disclosures are the evidence you need.

Here is what you need to prevent liability:

1. Common sense

2. Legal disclosures

3. knowledge about liability to guard against known liable behaviors

4. understanding of liability to guard against potential liable acts

Armed with these 4 shields against liability, you can enjoy your short sale and loan modification business with confidence.

In future blogs I will go into more detail of specific liability situations and explain how to avoid them.

Ken

I read an article today in the Mortgage News Daily (click here for that article). The author provided quote after quote of stories of woe over the delays of short sale approvals or rejection, the inability to talk to the negotiators, and a stated frustration over spending a couple hours a day trying to push the lender for a decision.

The delays are a reality. It is justified to be frustrated over those delays. After all, it is difficult to get a buyer to wait for 3-5 months for approval. Many walk away before then. However, I have a close relative and friends who are top executives in nationwide banks and secondary market investors. The delays are a reality because they have experienced a coming together of two major impacts: exponentially increased numbers of short sale proposals caused by the housing and mortgage collapses, and severe financial crises forcing many of them to teeter on the edge of bankruptcy. Indeed some of them have been forcibly nationalized by the government, taken over by other banks, or dissolved. Those remaining have inadequate personnel to handle the sudden increase in short sale, not enough revenues to create a huge force of negotiators/analysts to process the short sales, and the time it takes to train more personnel is also very lengthy. The result? Delays. That’s a reality we have to live with for a while. The banks are trying to catch up. They understand the losses.

However, there is a flip side of the coin. The bailouts by our Uncle Sam has inadvertantly caused an inticement for lenders to foreclose rather than mitigate. When you remove penalties for holding REO’s and give money to cover the losses, where is the incentive to approve short sales? This has been partially rectified by Uncle Sam backpeddling with the recent bill that was signed into law to encourage lenders to approve more short sales.

We will have to merely tolerate and make do over the delays until the banks catch up with adequate staff and proper procedures. We, too, must have patience.

Now about the inability to contact negotiators. Realtors make the mistake of thinking that the servicing lender negotiator or their management decide the short sales. Not true, usually. The loan is owned usually by a secondary market investor (SMI). The so-called negotiator negotiates very little and is merely a processing clerk, usually very low paid. You don’t need to talk to him. The most important thing is that you do not give him or her a reason to tank your proposal. The proposal must be designed, not for the servicing lender, but for the SMI. When the response comes back, you will be notified. Also, if there is mortgage insurance and the MI carrier has paid a claim, they too will need to provide approval. The negotiator merely provides their response to you. I much rather talk to the loss mit call center people. Make them laugh. They will often go out of your way to talk during breaks to the negotiator and make things smoother for you. Do NOT call supervisors, unless the someone lies to you and it will be obvious. They rarely do anything to help you, will stick to only what is required of them, and can actually impede your case.

Finally, the third item, “a couple hours a day trying to push the lender for a decision”. Bad idea. Every contact you make to the loss mit call center or the negotiator gets logged into the contact database. If you call so often you will likely piss them off. Doing that could cause them to tank your proposal, and no one would know. There is no reason to call so often unless there is a promise of something by a specific date. Then call the next day after it is due. Otherwise, one call a week to the call center is enough. If they say it will take 15 days for a response, you justify that call by telling them merely that your client is calling and they demand you to check on progress. Keep it friendly. This approach is efficient, and stress-free. Everyone is happy.

The idea of pushing the lender for a decision is ridiculous. The servicing lender is not the one making the decision usually. Trying to push them is like trying to push a rope!

We have published for you complete and comprehensive training and step by step guides. They provide not only step by step guidance for handling short sales and loan modifications, but they also provide a deep understanding of liability and how to avoid the liability minefields of short sales and loan mods. further, for new agents and investors, there is instruction in how to run an efficient and effective short sale and loan modification business. They are:

Short Sales & Loan Modifications: A Practical Guide for Real Estate Agents and Investors

Short Sale Business Manual (includes loan modifications)

We provide three levels of services:

Training

Coaching

Short Sale & Loan Modification Mediation.

What did the negotiator tell you? Price not enough? MI carrier did not approve it? Management rejected it?

While those reasons could be right, lender reps often will lie to agents or investors. My review of failed agent cases reveals that most often the agent did not understand the minimum threshold analysis, the elements required to show the legal definition of hardship, or they said something that likely caused the negotiator to tank the proposal. I have been informed by several negotiators that when they have a pushy or rude person, the short sale case “goes nowhere“.

It is critical that the technical requirements of a short sale be understood and followed. It is also very important to treat the lender employees with a lot of understanding, humor, and courtesy.

We published 2 books to help you with short sales and loan modifications. They are step by step guides to help you handle the cases properly and successfully. We even teach you the negotiating techniques used effectively by lawyers and even the U.S. State Department.

I found the following article at DS News:

HOPE NOW announced this week that 270,000 homeowner solutions were completed in April. This is the largest number of workouts in any month since HOPE NOW began to compile data.

Last month, HOPE NOW members and the mortgage lending industry modified 127,000 mortgages and completed 143,000 repayment plans. Compared to March, modifications dropped slightly, while payment plans increased. HOPE NOW explained that the reversal in numbers was partially caused by the industry beginning to implement the Obama administration’s Home Affordable Modification Program (HAMP).

Under the conventions of HAMP, loans are subject to a three-month trial period before a modification can be completed and, therefore, are classified as repayment plans or trial modifications. As a result, HOPE NOW said, the number of repayment plans increased and the number of modifications decreased from what otherwise might have been recorded. Those workouts that successfully complete the trial period will be formally reported as modifications after 90 days.

According to Faith Schwartz, HOPE NOW’s executive director, the lenders and servicers are working hard to make HAMP a successful weapon in the fight against foreclosures. “Many HOPE NOW members see HAMP as an important opportunity for homeowners in trouble,” she said. “The number of homeowners helped by the industry each month should continue to increase as this program continues to be implemented.”

HOPE NOW’s data also showed that the number of home loans 60-plus days delinquent was the same in April as in March, at just under three million. While foreclosure sales increased, from 53,000 in March to 65,000 in April, foreclosure starts dropped by more than 16 percent.

With 127,000 loans modified in April alone, this is a great opportunity for Realtors to create an additional revenue source. If the loan mod is rejected, you then can process it as a short sale for additional revenues. Be certain you are legally qualified in your state.

Want to know how to process a loan modification? We have published 2 books to guide you step by step.

In the news is the following excerpt about Countrywide Home Loans NKA Bank of America:

Bank of America says it modified more than 64,000 Countrywide mortgages between December and March. The workouts are part of the bank’s agreement with 42 state attorneys general to settle predatory lending charges against its Countrywide subsidiary.

A bank spokesperson told Bloomberg News that the modifications made so far have reduced borrowers’ principal and interest by $823.5 million. Under the settlement reached last October, Bank of America agreed to make modifications on 390,000 subprime and adjustable-rate mortgages originated by Countrywide – a move that is expected to save borrowers as much as $8.4 billion.

Bank of America has faced an onslaught of lawsuits since acquiring subprime lending giant Countrywide last July for $2.5 billion. BofA is being sued by Countrywide’s mortgage investors in the U.S. District Court of New York, over who should pay for the modifications the bank is making as part of the anti-predatory lending settlement. The investors hold an 88 percent ownership in the home loans up for re-working.

This also means that not only Countrywide, but almost all lenders are increasing the numbers of loan modifications they are approving.

Why should a Realtor handle Loan Modifications? Because a Realtor is needed to value the property and Loan Mods provide a source of income to the Realtor, about the same as some commissions. Then, if it is not approved, you can then process the same property as a short sale.

Some states are regulating who can process loan modifications, so be certain you check to be sure that you do not need certification.

We published 2 books to help you with both short sales and loan modifications. They are designed as step by step guides to both processes and also to running a short sale and/or loan modification business.

The new administration really screwed up the short sale industry by bailing out lenders and giving them an incentive to foreclose rather than approve short sales. Since then, they have been back-peddling to try to solve this problem.

A result of the government’s efforts is that 2nd mortgage holders will receive a $1,000 payout from the government if they will approve the short sale. This will encourage more of them to agree.

Another provision is the protection of agent commissions. Normally, the secondary market investor may have commission limitations by policy, but servicing lenders often try to negotiate those commissions lower. In my firm, we have procedures to prevent that for the agents we work with. However, under the new guidelines, the servicing lenders are instructed not to try to negotiate for lower commissions if the commissions are “reasonable”.

To what lenders do these guidelines apply? Well, most certainly to government-owned entities, HUD, Fannie, & Freddie. The government owns some of the others also. Some private entities may follow the guidelines particularly if they rely on government sources of funding.

To read the press release, go to the government press release.

If you want an instructional course to guide y0u step by step through the short sale process, we have published 2 books for you the can be purchased here on this site

I help a lot of real estate agents and investors with processing short sales. I have purchased books and courses, and found them littered with errors and misconceptions.

How does this happen? Because agents gain a lot of experience do the things that the lender representatives tell them is the correct way…and they mislead the agents & investors.

I begain representing lenders 20 years ago, then changed my law practice to representing consumers. Over the years, I have gain a lot of contacts among lenders, including a close relative, and several friends.

First, the so-called lender refers to both the servicing lender (SL) and the secondary market investor (SMI). It is this SMI who owns the note and provides the approval/rejection. The SL negotiator really negotiates nothing, although they will try to mislead you into thinking they do.

So, with that in mind, here are the most common mistakes in submitting short sale proposals.

1. Contacting the lender before there is an offer

2. Not submitting all of the right documents at the same time

3. The hardship letter not containing the required elements

4. The financial records not consistent with the hardship letter

5. Submitting the documents without a professionally drafted proposal

6. Not making the proposal meet the needs of the SMI that you cannot contact

7. Being pushy… motivating the SL negotiator/analyst to tank the proposal

8. Not meeting the SMI’s minimum threshold net receipt percentage of the fair market value

9. Calling too often — and not often enough

10. Poor tactics with the SL

We have a solution. We have published 2 books to help you.

Short Sales & Loan Modifications: A Practical Guide For Real Estate Agents and Investors

This book is a step by step guide for agents for listing, processing, and negotiating short sales…AND running a short sale business. For investors, the instruction is easy to follow and designed to help you succeed.

Short Sale Business Manual

This is a companion book containing all of the legal documents, disclosures, and forms referenced in the other book.

Many people agents and investors who submit short sale proposals to lenders assume that the negotiator assigned by that lender is the person that will approve their short sale. Others believe that the negotiator is just the front man or woman for a committee or committees who provide the actual approval or rejection.

Actually neither is true, except in rather uncommon situations. That lender is merely a servicing lender. You see, shortly after loaning the homeowner the money for the home purchase, they sold the loan note to a secondary market investor (SMI), such as Fannie Mae or Freddie Mac. The SMI is now the owner of the loan and are the entities that approve or reject the short sale applications. Now, this is true except when it is not. There are some situations in which the servicing lender has that authority, but this is not as common. Fannie & Freddie own about 65% of the mortgage loans, or more.

Also, if the loan is in default and there was private mortgage insurance, this MI carrier also has the right to approve or reject the short sale. In fact, if the MI carrier paid off the loan entirely, they are now the owner and they solely have the right to approve or reject the short sale.

The negotiator for the servicing lender really negotiates little, if anything. He or she is merely an analyst who makes certain that everything in the proposal is technically correct and then forwards the proposal to the investor or MI carrier, or both.

Many agents and investors make the mistake of trying to argue or reason with the negotiator. Those negotiators feed this misconception and will lead you to believe they are the ones who must approve the short sale. Yes, they often lie. They like to lead agents and investors into believing they have the power. However, this is rarely the case.

There is an exception to this. There are some regional banks who provide home loans from monies local or regional investment groups made up of wealthy doctors, lawyers, executives, etc. These groups will often by contract vest almost complete authority in the bank to negotiate and approve the short sale. The contract between the investment group and the bank will spell out the specific requirements to which the bank must adhere in the approval or rejection.

It is now the case, that since Fannie and Freddie own most of the loans, and the government now owns those entities, that it is the federal government who will approve or reject your short sale. The result has been the slowing down to a snails pace the approval or rejection of the short sales, and a change in which the short sale will be analyzed. They have been approving less short sales and have, in fact, have encouraged the SMI’s to foreclose on more homes with the bailouts.

This is now changing. Like every government screw-up, they are now trying to fix the problems they created. However, they are no longer using the short sale vs. REO analysis, but are now using the minimum net receipt to lender threshold of the fair market value analysis whether to approve the short sale. I will speak to this in another article soon.

For the most complete and thorough guide and instruction in submitting short sale proposals, see our book, Short Sales & Loan Modifications: A Practical Guide For Real Estate Agents and Investors. This simple to read book is sold on Amazon.com and available through our website.

TheLawsonGroup prices provide mediation services for short sales and loan modifications for those agents and investors who wish to list the properties (or buy them), and leave it to us to draft and submit the proposal and work with the lenders to get them approved.