LawsonGroupMediation

Mortgage News Daily just reported that as the unemployment rate is approaching double-digits, in the first half of 2009, there have been almost 2 million foreclosure filings, more than 15% higher than the same period in 2008.  This is a massive missed business opportunity.

You could say that most foreclosures are missed opportunities for short sales.  Yes, many homeowners will refuse an alternative to foreclosure or seeks that opportunity too late, however, there is still an incredible opportunity in many markets that could be used to expand your business.  Too busy?  Leverage your resources with TheLawsonGroup to process and mediate your case while you seek more listings.

Financially stressed homeowners often do not respond to traditional forms of marketing.  It is important for you to realize that typical sales personalities, scripts, marketing pieces are often not effective.  In my book, I address this in great detail.  In my bankruptcy practice, It took a different approach to get them to pull their heads out of the sand and come see me to help them with their financial problems.  For short sales, it is critical to understand homeowners and why they become emotionally frozen.  It stands to reason that if you understand why people freeze when they are having financial problems, you can design your marketing approach to help them get off their …er…butts and let you help them.

As time goes by, all of those missed opportunities are costing you money.  Need help?  We do offer coaching to help you pry open the doors to those opportunities.

As a wise man said, “Git ‘er done!”

Ken Lawson, JD

TheLawsonGropup Mediation Services

Besides my career in law and a short stint as a real estate agent, I also served in law enforcement.  I was a State Trooper in Wisconsin for 9 years and a Special Agent for Maine Drug Enforcement Agency.  In addition, I was a police officer in municipalities for 4 years.

As a result, I have been often asked by other real estate agents about how to stay safe.  This happens after news reports of agents being assaulted or killed while showing houses.  Here is my response.

First and foremost, it is critical to adjust your attitude.  Say what?  By this I mean that you must choose and practicing thinking about choosing an attitude that you will survive, no matter what.  This is an attitude that you will never give up, never give in, and you will not be a victim.  This attitude is much more important than you may realize.  It is this attitude that will motivate you to get training, to practice, to stay alert, to practice safety precautions, and to not freeze emotionally.

After my state patrol training, I wondered how I would react when I experienced my first violent encounter.  I wondered if I would freeze emotionally, forget all of the training I had just mastered, and if I would still be alive afterward.  I did not have long to find out.  When it happened, my training kicked in and I handled it just the way I had been trained.  It happened very quickly and I did not have time to think anything through.

I discovered afterward, and ever since, that choosing that attitude makes a lot of difference.  It is that attitude that makes one move quickly as a reaction, rather than freezing emotionally and succombing to fear.  So, choose that attitude that you will never be a victim, that you will never give up.

Next, the most important thing to do is to program your reactions.  A response is a well-thought-through plan that you execute.  A reaction is your initial instincts, what you do before you can think about it.  We all have our default reactions: fear, flight…whatever it is, it almost assuredly the wrong action to take.  You program your reactions simply by thinking through various scenarios and the proper actions to take.

I learned to do this from my police training.  Whenever I approached a vehicle in a traffic stop, I would think through a number of “what if…’s”  When I pulled into a convenience store, I thought through where I should park, how I should approach the entrance without seeming paranoid, and a variety of what-if’s.

The result?  One time I pulled into a convenience store, following the procedures that I programmed into my thinking.  As I apprached the corner of the store, something caught my attention and I stopped by the corner of the building.  The entire front of the store was reflective glass, and it took several moments to make out what was going on inside.  I was then able to make out that the clerk had his hands in the air, that there was someone in front of him and then I observed a shotgun.

Immediately, as I started to draw my weapon, I heard some popping sounds.  I looked to my left toward the alley behind the store and saw an old car with a driver holding a gun and shooting at me.  I immediately returned fire, and the car suddenly backed up and out of sight behind the store.  About that time, I saw out of the corner of my eye the other subject come out of the store and pointed the shotgun at me.  He fired the shotgun just as I ducked around the corner. I came out to return fire and observed him going around the other corner of the building and out of sight.

I then heard the racing of a car engine, and the car reappeared and headed down the alley.  As it came into view, I returned fired on the vehicle preventing them from shooting at me again.  A high speed chase ensued for a while before they crashed into a parked car.  They were then taken into custody.

I did not have time to think anything through.  The entire incident at the store took place in less than a minute.  However, I did everything instinctively that I had programmed into my thinking for the previous weeks, months, and years.  We do the right thing instinctively when we program our reactions by thinking through all possible scenerios and what the right reactions to take.

You can do the same thing each time you show a house.  Practice thinking through all of the possible what-ifs.  But what are the right things to do?  Some of them will be obvious, but I highly recommend that you receive training in personal defense.  This training is often provided upon request by police departments and other organizations.

So, the right attitude and programming reactions.  These are the most important safety precautions.

Now let’s list some practical suggestions.

1.  Never meet an unknown potential buyer at a house for a showing.  When I received my Keller Williams training, they emphasized the wise policy to never show a home to an unqualified buyer.  They recommended to meet potential buyers at the office first, make a copy of driver’s license as part of office policy, and prequalify them.  This makes good sense and will eliminate a lot of the dangerous situations.  You have time to get acquainted, time to assess character and motivation.  One time I prequalified a young couple.  They objected to the office policy of making a copy of their drivers licenses, and in the process I caught them in several subtle mistruths.  I refused to show them properties and they stormed out.  The next day I heard in the news about a man-woman team who were burglarizing homes for sale.  My two people matched the discriptions, but I never found out if they were the ones who committed the crimes.  However, it underscores the validity of this precaution.

2.  When alone at an open house and anyone appearing bigger and stronger than you comes to visit, welcome them and tell them you are expecting a large group of people to arive any moment to see the house and you are happy they got here before the group.  Then, instead of meeting in the kitchen, meet them at the front door with the door open.  In inclement or cold weather, you can keep the front door mostly closed, but slightly ajar.  In good weather, as an alternative, you could meet them outside.

3.  When arriving at an unoccupied home, before going in, drive up and down the street looking for suspicious people or people sitting in cars at a distance.  Then walk around the home looking for broken windows, unlocked doors, or other signs the home is not secure or broken into.  Often it is small young people who gain access for alcohol, drug, or sex parties inside the home.  Look in windows if you can.

4. Make arrangements with someone, like the office greeter, to call them when you go in and that person call you every 10 minutes to check on your welfare.  If you are with people, just make prearranged comments that indicate you will call them back later.  That way you are both safe and communicating to the people you are with that you value your time together.

There are many other things that you can do, however, the foregoing are the most important considerations.

I encourage you to choose your attitude, obtain training and program your reactions, and abide by some common sense practical rules for your safety.  You are worth it.

Ken Lawson, JD

TheLawsonGroup Mediation Services

Over the last two decades, a new profession has emerged and become fairly widespread in the court systems: that of the mediator.  The standards for professional mediation has become quite varied with some states requiring a doctor’s degree in areas such as law or psychology.  Other states, however, have very low standards, with no educational requirements, but certification still being required.

In addition, the training for mediators has also varied tremendously.  While in some states, the training has been standardized with minimum standards, other states have virtually no control over the quality of training for certification.

Is an advanced degree and rigid standards of training required really necessary?  For community mediation, mediation involving parent-child, small claims courts, and many other conflict situations, rigid standards of education and training are not necessary.  However, for mediation requiring substantial legal issues, and for general civil mediation requiring technical expertise, both the education and standards of training are of paramount importance.

Short sale mediation is far more than merely sending in documents to the lender and keeping in communication with the lenders until a decision is reached.  If that was all that was required, then anyone can do that effectively.  Indeed, now there are “loss mitigators” and “negotiators” who used to work for lenders now providing 3rd party processing of short sales.  However, those loss mitigators and negotiators are not professionals nor do they have the knowledge of an experience short sale mediator.  Those individuals are relatively low paid processing clerks.  A good corollary would be my legal secretary practicing law.  Just because the secretary handles and processes my legal documents all day long, and knows the answers to a lot of questions, does not qualify that secretary to practice law.  The same is true for former loss mitigators and negotiators.

So, what is mediation?  Mediation is process in which the mediator, utilizing specific methodology and skills, resolves a dispute between the parties.  It is not bringing people together to compromise.  In fact, if there is compromise, there is often a lose-lose result, or a win-lose result.  Mediation, on the other hand, uses specific procedures to protect each party’s interests and bring about a win-win for each party: lender, buyer, seller, and the agents.  Most people cannot imagine the skills that are required, or the methodology used to bring about that result.

As a mediator, we serve as neutrals.  I am not representing any of the parties, but protecting the interests and confidences of each party.  As such, we have a different relationship with the lender.  It is non-adversarial.  It is unique and we are not seen as adversaries.  Remember, the servicing lender is not usually the lender who owns the mortgage note, and it the SMI whose interests we are protecting, along with the agents, buyers and sellers.

How is it different from negotiating?  A negotiator necessarily represents one side of the issue, no matter how nice he or she may be to the other parties, the negotiator is an adversary.  The relationship is different, and that difference is played out behind the scenes greater than most people realize.  Negotiating uses different skillsets.  As a lawyer, I was also a trained negotiator and those skills were refined as much as possible.  However, as a mediator, I use different skills and methods.

From the perspective of most people, negotiating and mediating seem to be simple and it is difficult to understand that there could be highly refined methods, techniques and skills.  However, our federal government spent millions of research dollars in the form of grants to the Harvard Negotiation Project to study mediation and negotiation and to come up with effective methods and techniques.  The result of those studies were first demonstrated when the U.S. State Department mediated the Israeli-Egyptian war.  Since then, professional mediation has been instituted into most federal agencies and the U.S. Postal Service.  The standards are high for certification and demonstrated skills are required.

In short sale mediation, our firm requires mediators to have advanced education or demonstrated specific technical knowledge and experience in issues being mediated.  They are required to demonstrate their abilities in the methodology and techniques used.

How are mediation methods utilized in short sales?  Remembering that the Secondary Market Investor owns the note, but in most situations we are not permitted to contact them directly, and also that MI companies who have paid a claim also have the right to review a short sale proposal, we do not have the ability to communicate with those entities directly.  So, we have to communicate in nonverbal means through the servicing lender.    So, we have developed strategies and techniques to enable the SMI and MI carrier to determine that we are protecting their interests and that the short sale should be approved if it meets their minimum threshold requirements.  The techniques help those entities to see clearly the issues and they address those entities’ needs.

We do provide a service that is unique and effective.  Another benefit of using mediation is the agent can focus on getting listings and then turn it over to us.  That benefit is leveraging resources.  Leveraging is one of the keys to growing a business and making it successful.

A good analogy is when a client comes to my law office and requests that I tell him how to represent himself in traffic court.  Some people are very good at this, and often the result may often be the same as if they had a lawyer.  However, besides the ethical issues, I know that with my unique education, training, and experience, I cannot teach the client to duplicate the relationship that an attorney has with the court, the particular knowledge of what to do when things go wrong, or the skills to overcome those issues.  The same with mediating short sales.  I have provided everything I can in our two publications to help stop the massive amount of errors typically made by agents, but mediation can provide a professional extra to the process that can often make the difference.

At TheLawsonGroup, we have three levels of service for agents:

First, we provide training in the form of two publications.  The publications provide a practical guide to handling short sales, including the avoidance of the errors typically made, the techniques of negotiating, the process of conducting a legal and market analysis, drafting a professional proposal, and the disclosures and forms to protect you from potential liability.

Second, we provide coaching.  We can guide you on a personal level from beginning to end, and help you to solve some of the problems and issues you face.  We can also guide you to build your business to the next level for greater income and prosperity.

Third, we provide mediation services to leverage your business.  You list, we mediate.  Not only does it allow you to do what you do best and let us deal with the banks which is what we do best, but as previously stated, it is a different relationship and we believe that we add a substantial professional quality.

See our website at www.LawsonGroupMediation.com for a full descriptions of all of our services.

I am often asked questions about real estate agent or broker liability.  Specifically, I am asked whether agents are held liable for only fraud or wheth an agent can be held liable for negligence as well.

Rather than quote cases right now, which would distract you from understanding how to apply the law to a variety of contexts, I will teach you the legal concepts.  Later, as I see cases that I feel compelled to share with you, they will be presented.

In the past, most court cases wherein a real estate agent or broker was found liable involved fraud.  Actually, there are two kinds of fraud: active and passive.

Active fraud includes these elements that must be proven: 1) The agent misrepresented a fact; 2) The agent knew in advance that the misrepresentation was not true and intended to make that misrepresentation; 3) The misrepresentation was made to induce the plaintiff to act or not act; 4) The plaintiff would not learn of the misrepresentation through due diligence; and 5) the misrepresentation was the proximate cause of plaintiff’s damages or losses.

Active fraud is very difficult to prove, and only the most egregious cases ever resulted in agents being held liable.  However, later another type of fraud cases found its way into the courts:  passive fraud.

With passive fraud, there is no misrepresentation.  Rather, the agent intentionally fails to state a hidden or latent defect, knowing that the hidden or latent defect will not be discovered by due diligence.  Courts around the country have included passive fraud as actionable, and some states have written this legal theory into state statutes requiring agents to disclose known hidden or latent defects.

However, both active and passive fraud are very difficult to prove.  Along with the person suing being required to exercise due dilligence, which causes many lawsuits to fail, they have to prove that the agent knew either actively or passively in advance, and further intended to lead the plaintiffs to their detriment.  This is a very high standard that is difficult to prove.

However, recently plaintiff’s attorneys have been arguing before the courts that a different standard should be used to judge Realtor conduct, that of negligence.  In many states, courts are beginning to recognize the professional malpractice standard of negligence as being appropriate for Realtor conduct.

Under professional malpractice standard of negligence, the plaintiff would need merely to prove that 1) the Realtor owed a duty of care toward the plaintiff client; 2) that the Realtor breached that duty; and 3) that the plaintiff (either the buyer or seller who is not even the client, but the customer of the Realtor) suffered loss or damages as a result of that breach of the duty of care.

In some courts, attorneys have to be extremely careful in the drafting of their lawsuits or the court will require the fraud standard.  However, there is increasing movement toward applying the professional malpractice standard of negligence to Realtor behavior. Realtors need to be more careful than ever to conduct their behavior in a professional manner.

So, how do you protect yourself?  E&O insurance?  Emphatically No!  Even if you have E&O insurance, you will be dragged through the legal mud of a lawsuit and the result is injury to your reputation, your credit report, and time away from your business, costing you a lot of money.

The way to protect yourself is through proper diclosure, the proper application of those disclosures, and maintaining proof of disclosure.

Providing proper disclosure amounts to general legal disclosures that are properly drafted.  In addition, be very concientious to disclose hidden or latent defects, not merely awaiting inquiry into them.  There is a very fine line between maintaining client confidentiality and participating in fraud, so be very concientious about that.

It is also very important, in the normal course of business, to maintain evidence of disclosure.  When clients or customers ask questions, it is a good idea to follow up the meetings with an email or letter confirming the questions and the answers your provided.

However, cases also turn on the proper application of disclosures.  In short sale cases, it is common for agents to merely place the legal disclosures in front of them, provide a short summary of it all, and then obtain signatures.  This is a mistake.  With the vast amount of paperwork in listing a short sale, agents tend to want to keep things to one session.  However, short sale listing meetings should take 2 or even 3 meetings to go over all of the paperwork and explain the process.

Thus, it is very important to go over each point of every disclosure, even reading them word for word with the client providing ample opportunity for questions or discussion.  Merely a signature is not adequate.  An acceptable alternative would be to leave the documents with them, inviting them to read them at their liesure and to write questions on the forms.  Then, at the next appointment, you answer their questions, and have them initial each paragraph on a clean form, with their signatures at the end.  Then, collect the forms you left with them as a worksheet for later evidence if necessary that you fulfilled your duty of care toward them.

I have seen many short sale disclosure forms.  Some are excellent.  Others are lacking and may or may not be adequate.  However, I have seen many disclosure forms used by agents in short sale cases that are wholly lacking and the wording of them would likely fail to protect them in a lawsuit.

This is one of the reasons that we published the Short Sale Business Manual.  This publication provides the legal disclosures demonstrated to be required from the many lawsuits around the country that threaten agents.  As a companion to the main book Short Sales & Loan Modifications: A Practical Guide For Real Estate Agents and Investors, this manual provides all of the disclosure needed for a normal short sale real estate or investment business.

Like lawyers, doctors, accountants, and other professionals, Realtors now must carefully conduct their business in a manner that will not likely result in professional liability.  We all must carefully conduct our professional practices in this manner, and now Realtors are increasingly being held to the same standards of review.

It is not difficult to avoid liability.  I encourage you not to be fearful or discouraged.  I do encourage you, however, to use professional care in covering yourself with properly drafted legal disclosures, taking the time to carefully review each point to clients and customers, and maintain proper evidence of this level of care and attention to duty.

Ken Lawson, JD

TheLawsonGroup Mediation Services

In a news article July 8, 2009 in DS News (http://www.dsnews.com/index.php/home/news_story/3202/1/0), it is reported that over the last two years, lenders often believe they will make more money from a foreclosure than from workouts such as loan modifications and short sales.  This would especially be true of the servicing lenders.

In a number of geographical regions, I have seen reports that agents have approximately 27-30% close rate of short sales.  While anecdotal, it tracts the experiences of many agents.  Many of you have much higher rates of success, and the agents that work with my firm also report a very high close rate, many of them greater than 90% close rates, even though they often work problem short sale cases.

There are some short sale agents who have a 90-100 % close rate, but analysis shows that most of those agents only take cases in which it is a slam dunk. Most of them only accept short sales with a net to lender greater than 90%, with no issues, and with only certain lenders.

The above article shows a motivation to reject short sales; however, government rules and federal law require lenders to participate in workout programs, including short sales.  Thus, if the lenders are motivated to reject the short sale while the law requires them to participate in workout programs, you can see that many lenders will find reasons to reject yoru proposal.

To prevent lenders from tanking your proposal, it is critical that you prepare a short sale proposal in a professional manner; that you conduct a complete legal and marketing analysis; and that you avoid the mistakes made by many agents that lenders use as excuses to tank the proposal.  You must also make certain that purchase contracts net to the lender the minimum threshold percentage.  That is difficult, especially if you cannot find out in advance who the SMI is and what their minimum threshold is for that loan product.

Our short sale course is designed to help you avoid the mistakes that agents commonly make, to maximize the likelihood of approval.  The book Short Sales & Loan Modifications: A Practical Guide For Real Estate Agents and Investors provides an in-depth guide to each step of the short sale process.  The Short Sale Business Manual provides all of the legal disclosures, forms and samples to help make your short sale business a success.

HUD backed properties that have sustained damage due to fire, flood, earthquate, tornado, or homeowner neglect may be sold in a short sale.  However, the lender will need to obtain prior approval from the USDHUD National Servicing Center before submitting the short sale for HUD approval.  They will first need to obtain the government’s cost to repair the damage from contractors approved by the government.  The lenders have access to those contractors.  You could obtain it yourself and provide it to the lender in the proposal.  A list of approved contractors is found at http://www.hud.gov/offices/hsg/sfh/reo/mm/mmingo.cfm.  The lender will then send form 90041 to HUD which is a request for variance to the National Servicing Center for the approval to sell the property in a short sale.  This, of course, will take longer than normal for short sale approval.

Although the SMI owns the note, this procedure may be followed either by the SMI or the SMI may have allocated this procedure to the servicing lender.

If the property is sold “as-is”, subject to the damage, the lender must deduct the estimated cost of the damage from its claim to HUD.  This is solely between the lender and government.  The lender may reduce the minimum threshold net receipt by the amount of those damage estimates.   The lender may, however, sell the property in a short sale “as repaired” and place funds in escrow for repair of those damages.  In this event, the minimum threshold percentages must be maintained, and repairs may not be part of the closing costs.

In some cases, the lender will not need to obtain this approval from the National Servicing Center.  The lender will know when this is the case and it is based upon the cause of the damage and whether HUD will hold the lender responsible.  However, the lender must work with the homeowner to file a hazard insurance claim and either use the proceeds to repair the property or adjust the claim by the amount of the insurance settlement or the government’s repair cost estimate.  Homeowners are required to disclose any property damage to the lender during the short sale application or after HUD approval. In the event there is damage to the property after approval by HUD for the short sale, the lender must re-evaluate the property to determine if it still qualifies for a short sale.

I recognize that describing this procedure may create more questions.  However, whenever you have properties damaged either by homeowner neglect, flood, fire, etc., contact a HUD approved contractor and obtain an estimate.  Get the homeowner to file a claim from their insurance company for any covered damaged (of course, not for homeowner neglect).  Specifically ask if the homeowner has flood insurance, if there is water damage.

If you do this for the lender and submit the documentation with the short sale proposal, you can shave off a lot of the extra time it will take to obtain approval.  It is difficult enough to find buyers willing to wait months for approval to purchase a home, so your activity in this regard for the lender will benefit your attempt to obtain approval for the short sale.

I hope this explanation has been helpful to you.  Remember, this is only for short sales of FHA/VA loans.

I am continually asked about the requirements for HUD approval.  The latest question concerned the signed HUD form 90035 and 90036.  Following is a summary of HUD requirements for an FHA loan on a property submitted for short sale approval.

Remember that the servicing lender may or may not be the owner of the mortgage note.  If not, which is usually the case, the note is owned by a SMI, most commonly Fannie Mae or Freddie Mac.  The Department of Housing and Urban Development guarantees FHA loans and will pay a claim to the owner of the note for their losses to the amount of the guarantee.

Because of their guarantee, HUD has the right to approve or reject short sale proposals.  More importantly, they must approve short sales if they meet the conditions.  On December 24, 2008, HUD made certain changes specified in ML 08-43.  ML is their Mortgage Letter that contains HUD rulings that they disseminate to lenders.  Here are the highlights:

• HUD approved mortgaged properties must be appraised by the lender using appraiser on the FHA Appraisal Roster
• Properties must be initially listed at the “as-is” fair market value, but not more than 110% of that value.
• The purchase price must be at least, net to lender, 88% of the fmv if sold within 30 days, 86% if sold 30-60 days after being listed, and 84% if sold after 60 days.
• HUD only allows seller concessions of 1%.
• Form 90035 is an information only form and no longer needs a signature to be submitted with the proposal.  This also means that the homeowner no longer is required to see a HUD approved counselor, so 90038 is also no longer required.
• Form 90036 is no longer required.
• Form 90041 has been modified to match the minimum threshold percentage.  This is the variance request used for damage to the property.
• Form 90045 is required for the homeowner to sign which is approval to participate in the preforeclosure sale program. This form will be provided by the lender.
• The lenders are required to participate in the program, and HUD monitors the appraisals to ensure compliance.
• The homeowner does not have to be in default at the time of the proposal.  Default must be imminent and they must be in default prior to closing.  This means they must be at least 30 days behind in their payments at the closing.
• Homeowners must have only one FHA loan.
• They are not required to occupy the property so long as the need to vacate was related to the cause of default and the property was not purchased as a rental for more than 18 months prior to acceptance into the preforeclosure sale program.
• The owner is not a corporation or a partnership, however, approval can be obtained to get around this.
• Distressed sales cannot be used as comps unless they are the only indicator of the value of the property.
• The servicing lender is required to provide to the homeowners information about the other alternatives to foreclosure.
• Approval may be obtained first, and then list the property, or this approval may follow the agent finding a buyer for the property.
• Commissions are allowed up to 6%.

Those are the highlights, and the answers to the many questions I have received.

To learn more about the services that my firm, view the rest of the site, email me, or call me at (208) 360-8689.

Check out our short sale course.