I wanted to share this information with you-it comes from Joe Roberto at Roberto & Associates Title Company. If you are considering buying or selling a short sale, this reputable company is the ONLY GAME IN TOWN. Don’t chance it, have them handle the closing.
Joe Roberto ,President & Licensed Title Agent, 954.776.2424
SHORT SALES
Want to save yourself aggravation and know the “real deal” with short sales – you may want to read the following tips. As we all know, the handling of the short sale process depends on the seller’s financial scenario, who owns the loan, the lenders/investors ever changing policies, etc. Thus, we at Roberto & Associates Title Agency, Inc. try to share issues and information to help all of us continue to have success with closing short sales.
MYTH – Sellers, and some agents, believe that when a lender approves a short sale, that there will not be a deficiency or 1099 issued by the lender.
- REALITY – This is NOT necessarily the case. A lender’s agreement to a short sale allows the property to be conveyed and sold. They will “release” the mortgage so that the new buyer can obtain the property through a purchase but the lender may not agree to the short sale as a full “satisfaction”. As a matter of fact, all short sale sellers should assume that a lender may reserve the option, after the closing, to pursue the deficiency OR issue a 1099 to IRS for the debt forgiven. Please note that a lender can only pursue the deficiency OR issue a 1099 – but they do not do both. And even if a 1099 is issued, it does not necessarily mean that there are tax implications. The seller should contact a professional tax advisor. Most importantly, only after the lender issues a written short sale approval letter, will the lenders conditions be stated – i.e., whether they may pursue the deficiency or not. Even when a seller pleads with the lender to accept the payment as full, often times the lenders (and their investors) will “still reserve the right” and will not budge to add the language of them not pursuing. So, if a seller is absolutely not going to agree to this possibility, you, as an agent may want to consider whether the short sale property can even be sold from the beginning. If not, there are many people who could be wasting their time – listing agent, buyer, title company, mortgage broker, etc. – especially after time has elapsed waiting for the short sale to get approved.
MYTH – All short sale commissions are now guaranteed to be at 6%.
- REALITY – NO, only Fannie Mae backed loans are providing for a 6% commission as policy. If the loan is backed by Freddie Mac, other investors, etc. the commission may be asked to be reduced.
MYTH – Raising the commission to greater than 6%, because a lender will sometimes reduce the commission, will help agents get to keep the target 6%.
- REALITY – While we understand that much more work goes into short sales, etc., and you should certainly do what you, your broker, seller, etc. agree to, it is our belief that doing so only draws attention to the commission. And if the short sale policy is to reduce it, no matter how much higher it is submitted, they will reduce it to the level “their investor/lender policy” states.
MYTH – Sellers have to be late with their payments to be considered for a short sale.
- REALITY – This is not necessarily the case for many lenders now. If the seller can demonstrate a true financial hardship, the property is listed, the contract offer is close to the last sold price, etc. many lenders will consider a short sale. It is important to understand that the highest priority of approving short sales are those properties close to a “final sale date”, followed by properties whereby the foreclosure process has started with the filing of a Lis Pendens, and so on.
MYTH – A seller can try to do a loan modification while they also try to list and sell their property as a short sale.
- REALITY – Many lenders will not consider a short sale if the owner of a property has a pending loan modification request in progress. The property owner needs to decide BEFORE they start a short sale whether they want to do a loan modification OR a short sale and ensure the lender knows of their change. If not, the lender will STOP the processing of any short sale request until the loan modification is halted by the homeowner. While we all are in the business of handling closings, if the seller would like to keep their home and can afford to do so, great – but let’s not waste our time if a loan modification is a possibility and the seller would prefer to keep their home.
MYTH – A contract for the full list price will make the short sale approval go faster.
- REALITY – The answer is maybe and maybe not. The real question is, is the contract relatively close to the last comparable sold price. List prices mean nothing to lenders – especially in this market. Some list prices are set at what the owner owes is reduced gradually (which makes no sense to us) and some list prices are so very low just to get an offer in on a distressed property. If there were no recent comparables, then it becomes a little more difficult – so the appraised value or BPO (Broker’s Price Opinion) will decide. Want to jump start the process; have an appraisal done if a CMA is impossible. With a short sale, it may be a waste of money for the buyer but for the seller it is the quickest way to get to the closest “sales price.” Just an idea.
MYTH – A lender will always work with buyers and sellers, after they approve a short sale, on an extended closing date.
- REALITY – Lenders often agree to a short sale verbally and then take several days (and sometimes longer) to send the final approval letter. The approval letter will often state a closing date. If the buyer, due to financing delays can not close, often times a lender is willing to provide “some” additional time. But lenders are not willing to extend a closing date to accommodate a seller still trying to move out, find a place to rent, etc. It is important to ensure that renters will be out and sellers will be ready when the green light is given on a short sale.
Did you know?
1. Some lenders will not consider a short sale if the property owner has not filed income tax returns for 2006 or 2007.
2. Most first mortgage lenders, including Bank of America, will only allow (an unwritten short sale guideline they all follow) the second lender to get a maximum of approximately $3,000. BUT, when Bank of America is in a second lender position they now (their policy has just changed) want 5% of the net (net of what is going to any and all lenders) for a short sale to be approved by them. Stay tuned.
3. If the bank wants copies of pay check stubs and the seller is unemployed, may we suggest they write a separate letter that they are not submitting pay stubs because they are unemployed – even if stated in the hardship letter.
4. Some lenders are now refusing to pay large or, with one lender, any delinquent association dues on short sales.
5. Asking short sale lenders for repairs after they have approved the short sale can be challenging to say the least. This is especially important to remember when the buyer is doing an FHA loan. Thus, FHA buyers may not want to consider short sale properties that will need roof repairs, etc.
6. A short sale must be an “arms length transaction.” The definition of an arms length transaction is that all parties (buyers, sellers, and real estate agents) are not related nor have a business relationship to each other. Many lenders are now requiring an affidavit to be signed attesting to this at or before the closing. And even if an affidavit is not required by the lender(s), it is understood that all parties are arm’s length in short sale transactions. If not, the lender needs to be informed before making their decision.
7. Many short sale lenders are no longer accepting Power of Attorneys to be used to sign HUDs. The seller must sign the HUD themselves. This is especially important to remember for sellers who will not be at closing.
8. Roberto & Associates Title Agency, Inc. knows the ins and outs of short sales – can you tell. Volume, experience, training, and a true thirst to understand short sales pay off for our clients.
All the best-Jon
I came across this great article on RealtyTimes.com, giving us further proof that we’ve hit the bottom of the market and the market is changing as we speak. They say that mortgage applications last week for purchasing and refinancing were up 77% over the same week in 2008! Feel free to share with your family and friends.
