LawsonGroupMediation

A recent court case underscores a recommendation I have been making for agents involved in short sale cases.

The homeowners contracted with a real estate agent to sell their home.  With the drop in market values, the agent helped the homeowners understand that they could still sell their home as a short sale.

The homeowners agreed and the agent went to work listing the property and seeking buyers.  They finally obtained an offer from a cash buyer, which looked great and had a good chance of being approved.

As we all know, this past spring short sale processing by the servicing lender and the secondary market investor (SMI) slowed to a standstill.  The contract terms made the contract terms binding and subject to third party lienholder approval of the short sale within 120 days.  Other terms were the customary subject to inspection, and the state form provided for easy exit fromt he deal by the buyer.

On day 95, the buyers backed out, claiming they had driven by the house for an inspection of the exterior and found it unsatisfactory.  They also claimed that the short sale addendum allowed them to back out of the deal.

The seller clients were livid.  It was now too close to the scheduled foreclosure sale.  They were unable to find a replacement buyer and the foreclosure was completed.  The seller clients sued their agent.  They claimed that the agent had a responsibility to make sure the contract was binding or otherwise they would have rejected the offers until they found a buyer willing to be bound to the agreement.   Since multiple offers were not accepted, the agent was unable to prove there would have been another buyer had the contract been binding.

For this reason, our firm has encouraged agents to have their client sellers sign a Binding Contract Waiver in the event the buyer walks.  There is greater liability in short sale cases because of the extreme result if the short sale fails, in contrast to normal sales.  The Binding Contract Waiver places the seller clients on notice of the possibility that a buyer may be able to get out of the deal and the seller clients would be unable to claim they did not know the risks.

We recommend that you all, as a matter of course, ask your seller clients to sign a Binding Contract Waiver in every short sale to prevent this potential area of liability.

Best wishes,

Ken Lawson JD

Ready for change?  Here it comes…or is it?

Through these articles, or blog posts, I have been attempting to educate agents concerning the many, many issues of misinformation that have provided in short sale books, courses, and training seminars.  Since I really have more of a warm heart of a teacher than a lawyer, I want to be of service to those of you who appreciate it.

So, I have helped bring clarity to who owns the note, the secondary market investor (SMI), and who approves short sales, the SMI, not usually the servicing lender the proposal is submitted to.  I have also attempted to help you understand that the old method of analyzing a short sale which merely compared the amount of loss if the short sale is approved has been replaced by most SMIs to the new net-to-lender minimum threshold percentage of the fair market value.  This change started late summer of last year and became widespread by the end of the year.

Now, bloggers are spreading the word about a new system under the new Making Home Affordable legislation.  They are sounding the alarm that there massive change taking place that is replacing the current system.

My response?   Whoaaaa, just a moment!   Stop.  Breathe.  What is taking place is not a major change.  There are a few changes but let’s put them into perspective.

First, the real change is the current political environment.   It does not take a political activist, extremist, or alarmist to see that the current administration and the liberal democratic majority in congress are attempting to change our way of life away from capitalism and substantially closer to the European models of socialism.  This is not a criticism but the reality.  Whether you are democrat or republican, liberal or conservative, progressive or traditionalist, the reality is that from the last election democrats believe they have a mandate to move us away from what they believe are the ills of capitalism.  The vast majority of lawyers are liberal/progressive, and I have my foot in both sides depending upon the issue.

How is this important?  Because there is war being waged between many of the financial institutions and the treasury department.  Treasury now owns both Fannie Mae and Freddie Mac, and a growing number of other institutions, both SMIs and servicing lenders.  Treasury is putting the squeeze on financial institutions with the stated purpose to vastly reduce the number of financial institutions.  That is their speak for pushing them to the brink of bankruptcy, then rescuing them (bail-out) and taking ownership.  One of the objectives of socialism is to take over employers, and financial institutions are one of the major 5 critical industries required to make socialism effective.

The MHA legislation was passed to help accomplish this.   Wait, it’s real purpose was to do something to help slow down the massive numbers of foreclosures.  However, the method was chosen to also assist in this societal change.  The main bloggers triggering alarms are stating that Fannie and Freddie own 85% of the mortgage loans.  Well, the government claims this, but it is actually not much more than 65%, but growing.  85% is their objective, a very important objective to meet their goals.

Under the new system, you will hear about the net present value formula that servicers will use to determine the list price and the price the property can be sold for.   This is nothing more than a new label for the current net-to-lender minimum threshold percentage of the fair market value.  The SMIs will provide instructions to their servicers to approve these short sales up front rather than submitting the short sales to the SMI each time for approval.  The SMIs will have their own trained representatives in the loss mitigation of the servicer to oversee the same system we have now.  The only real change will be that they will be able to use that to guide the agents as to the price reduction strategy to use in listing.

In my blog articles, I have made references to current experimental programs between Fannie, Freddie, Treasury and a number of servicing lenders.  Well, it is this that I was referring to.  It will likely continue to widen as they experience success and train everyone.  It is merely the moving of the current system to having the lenders work more up front to help agents meet the current requirements.

I will provide more information about this in the future.  However, I encourage you all to not panic, not react hastily, and not become overly concerned about its affect on short sales.  Yes, there will be new forms and communication with servicers before listing the short sale, but it is not as big of a change as many fear.

The political pendulum continues to swing back and forth between a capitalistic society and a socialist society.  We do not yet know if the current swing will become entrenched, but if it does not, the new changes in short sales will likely remain.  It is a sensible approach to try to solve the short sale problems.  However, even with these changes there will be unplease consequences.  Government always seems to create as many problems as they solve.  Sometimes the cure is worse than the disease, but sometimes it brings relief.

Best wishes,

Ken Lawson, JD

There was a recent press release from the U.S. Treasury that stated that the Treasury Department would soon finalize plans to increase incentives for “banks” to approve short sales.

The “banks” here includes both the servicing lenders and the secondary market investors, and it is usually (but not always) the secondary market investors who approve the short sales.

The problem first came about when the mortgage crisis hit and people began losing their homes en masse.  The Treasury Department did little at that time.  This crisis also increased almost exponentially the numbers of short sales being processed by the servicing lenders and reviewed by the secondary market investors.

The servicing lenders were also in a severe financial crisis and many failed.  So add a financial crisis to suddenly needing many more processors to handle foreclosures and short sales, and this spelled trouble…in the form of extremely long short sale processing time.

Then came bailouts and servicing lenders now had incentives to foreclose.  Short sale buyers would not hang around for so many months, and many short sale packages were tanked by servicing lender processors.

In the last few months, Treasury has conducted a number of experimental programs with Fannie, Freddie, and a number of servicing lenders to find ways to efficiently process short sale proposals.

However, the biggest emphasis has been on getting servicing lenders to approve loan modifications.  With the law change in May requiring them to process workouts, loan modification approvals increased from about a reported 15% rate to a reported rate of approval of about 35%.

Now Treasury is trying to offset the previous disincentives to process short sales by approving more money to the lenders.  This is like what happened to bread in the 60’s.  Do you remember?   Bread bakeries took much of the nutrition to make white bread and added a little back.  They then proclaimed how great they were for adding nutrition.

Short sales are improving, however.  Our firm has seen a great reduction in the length of time it takes for servicing lenders to process our short sale proposals and forward them to the secondary market investor, and for these investors to approve them.  Many MI carriers, however, are still slow in processing and approving, but some are also improving.

Let’s hope that we see more improvement very, very soon.

Best wishes,

Ken Lawson JD

Ken Lawson, JD your short sale coach

I watch a lot of real estate agents, investors, and other business people struggling to stay on top of all the many details in running a successful business.

Moving a business from a start-up or even a stumbling position to an income-producing successful business is all about conforming your business to a successful model and then creating systems that are either automated, performed by “trained monkeys”, or minimize the amount of time taking care of the business of business.

Systems consists of people, technology, checklists, or procedures.  Anytime you find yourself getting bogged down, you create a system to open up the bottleneck.

One way to obtain more results with less time and effort is to leverage resources.  That means that you use other people to do more of what you do now.  In real estate this, of course, could refer to an assistant.  The assistant will do work for less cost than you do yourself.  The idea with leveraging the use of assistants is to delegate everything that does not require your skills to perform to the assistant.

Can’t afford an assistant?  If you cannot afford a full time assistant, considering paying another agent who has an assistant for some hours for your work.  Another alternative is to get together with other struggling agents and start a joint venture and share the expense of an assistant.

Leveraging means more than getting an assistant.  Leveraging applies to using other firms as well.  For example, leveraging TheLawsonGroup Mediation Services would allow you to focus on listings and just turn them over to us to deal with the banks.  Many of you are already using us to leverage your own success.  There is no cost to you nor do our fees come out of your broker commissions.

There is another way to leverage other people.  I know several successful agents who use other agents to do the detail work and take a negotiated referral fee.  One of these agents made over $120,000 last year solely from referrals.  She limits her time almost exclusively to marketing.

Leveraging, however, consists of technology as well.  Our firm uses Google Apps Intranet connected to our firm website.  This intranet service provides excellent processing and categorizing of emails, a great calendar integrated with the task list, and the ability to store all of your documents, and even create them, online.  For teams, it allows messaging and chat, checking each others’ calendars, and both public and private access to documents.

One great feature of Google Apps is that all of my emails can be viewed from my Blackberry (many of you already have that) and my calendar is sync’d with my blackberry when changes are entered.

However, when I coach real estate business, the most common error I find is the improper use of organization and time.  I wrote an article on this some time ago.  I did not think that I needed training in time management — until I received training in time management.  Now I understand it to be absolutely essential in moving a business into a successful enterprise.

For a free time management summary with forms, send an email to Info@LawsonGroupMediation.com and insert in the subject field: “Time Management”.

For those of you who are submitting your own short sale packages to servicing lenders, it is imperative to leverage systems to cut your time.  For example, we perform activities most agents do not do.  We complete a document review when submitted to us by agents (setting up the file and reviewing the documents until complete accumulates approximately 1 hour).  We then perform both a legal analysis and a market analysis that accumulates another approximately 1 hour.  Drafting the proposal and submitting it to the lender will add about another 1 hour.  We have very specific times when we call the lenders, so we spend very little time on the phone with them.  Even with lenders who are problematic we have efficient systems to keep the time to a minimum.  To perform all of these additional activities increases the likelihood of approval, so we leverage technology, procedures, and checklists to make it happen and keep our costs low.

For those of you who are not yet successful, I hope this article has started you thinking creatively to leverage anything around you that will save you time, produce greater results, and make your business a success.  If you need help, we are here and available to provide you with whatever assistance you need.

Best wishes,

Ken Lawson, JD