LawsonGroupMediation

Recently, Fannie Mae has started placing in their short sale approval bank release documents the condition that a subsequent transaction for the named property may not occur for 30 days following the short sale transaction.

I have received word from Freddie that they are moving to establish their own policies to prohibit or limit double closings of short sales. Since both entities are government owned and own more than 65% of the mortgage loan notes, it is apparent that they are attempting to recover losses from investors who purchase by option contract directly from a homeowner for when they might obtain a higher sale price if was listed on the open market in the MLS.

A great number of homes are being saved from foreclosure by investors. It is true that Fannie & Freddie are potentially receiving less money through double closing by investors, but they are still making more than they would in a foreclosure and selling the property as an REO (bank owned). To stop double closings would likely have the effect of reducing the numbers of homes saved from foreclosure. While they may mitigate their losses better by obtaining higher sale prices on the open market, it remains to be seen if the losses from these investors are greater than they would incur without these investors.

Another argument is that investors using options contracts to find other buyers for a double closing may not be having to pay broker commissions, so the net to the lender will still be quite high.

Most of the secondary market investors (SMI) like Fannie and Freddie have a minimum net to lender threshold percentage of the fair market value, so as long as the deal nets to them this threshold percentage they should not care.

There is a legal problem with this prohibition. Title companies face potential legal liability if they refuse to close the second transaction per the condition. The result? They may refuse to close on the short sale transaction, or they may ignore the condition and close on both transactions anyway.

Could the lender revoke their approval? The bank release documents comprise a legal contract. The contract is fulfilled upon their acceptance of the wire transfer. Once that transfer has been accepted by the lender, the contractual relationship ends. They could sue for damages, but they may have a difficult time showing any damages. The condition may be unenforceable.

It will be interesting to watch this development. I will wrote more about this as more information comes my way.

Purchase our instructional book guide: Short Sales & Loan Modifications: A Practical Guide For Real Estate Agents and Investors

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

This book will guide real estate agents to find, list, process, draft professional proposals, & negotiate a short sale. Designed for the beginner, this book will also help experienced agents to better understand lenders and secondary market investors, complete a legal and market analysis, and correct the mistakes typically made by agents.

For homeowners who desire to keep their home, but need a reduced payment, this book will guide agents to help homeowners for a fee to prepare professional proposals for loan modifications, and negotiate with lenders. If rejected, you then process the case as a short sale.

For investors, there is a golden opportunity to buy and flip or rent out. This book will apply the above principles to finding and negotiating the purchase of short sale properties.

***This book was written because the author found other courses, books, and training courses filled with errors and mistaken advice. Very experienced agents & investors have often become very experienced at doing the wrong things. How does this happen? Because many lenders do not like agents and investors and have misrepresented the proper methods of handling short sales.

By Kenneth R. Lawson, J.D.

Purchase Book
Price: $15.99

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

TheLawsonGroup Mediation Services

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.