Realtors and Short Sale Listings

For the purposes of this essay, I'll use the word "Realtor" to mean any licensed real estate broker, or broker's agent... even though they might not actually be dues paying members of Realtor™. I advocate the restricted use of a realtor in all short sale transactions to add credibility to the Short Sale Proposal; to help confirm the property's as-is, fair market value and to defend that valuation; to list and (possibly) market the property in a form that clearly identifies the listing and sale as requiring mortgagee short sale approval; to prequalify the Purchaser's ability to complete the sale; to devise the basic, preliminary Contract for Sale; and to facilitate access to the premises for various inspections and walk-thrus. After all, that's all part of a realtor's job description. If you are a realtor, or thinking about getting a real estate license and hanging it with a broker to facilitate preforeclosure or preforeclosure short sales, then I've sorta written this essay for you.



We know that consistently successful short sales require a lot of work, and I do mean a lot of work.... and, to a lesser degree, some good luck. Those of us who have been to short sale closings know that typically, the very first line item cost to be slashed in a preforeclosure short sale negotiation is found on line #700 on the HUD1. The real estate commission. Since the foreclosing lender is agreeing to take a hit...the lender wants to share the pain... and look to the real estate broker's commission check to impose additional reductions....



I've worked short sales across the USA, using local realtors that honor my referral fee agreement. Oftentimes, I'll provide both the Seller and the Buyer to a selected, local realtor... and offer the listing and sale transaction... conditionally. The realtor is apprised to what I'll need from the appointed realtor, and knows in advance that the contractual 5%, 6%, 7% listing fee is negotiable, and likely to be slashed by the foreclosing mortgagee whose (preforeclosure short sale) approval is essential. Some realtors decline to service the referral due to their preference/office policy to adhere to a more conventional practice, or due to preconceived stigma....perhaps arising from oft repeated horror stories about a foreclosure listing gone bad. Fortunately, there are many better informed and more receptive realtors hold the view that a commission earned, however large or small, is better than no commission earned at all.. I've always felt that an opportunity to advertise an office listing will make their phone ring.... with a chance to meet new buyers that otherwise wouldn't have called... and perhaps an opportunity to sell them another property....



If you are an active real estate broker, or a brokers' agent... you probably have an inkling of what's coming and in some places, already here:



a growing inventory of unsold, overpriced, over-mortgaged, preforeclosed homes



To expand your real estate practice to include the listing, marketing and sale of properties with mortgages that are delinquent, in default, or in foreclosure... that might also require mortgagee(s)'s preforeclosure short sale approval.... you must become familiar with special need customers, and prepare for The Listing Appointment.



We'll fast forward past the implementation of your farming, direct mail or advertising techniques that seek out potential customers who need to sell their home... quickly and without false starts. These potential customers that have already sought you out recognize you to be an authority and well able to help solve their multifaceted problem. Bear in mind that you won't be able to solve their real estate problem without information, oftentimes confidential and perhaps embarrassing information. You'll have to ask the tough questions and hold fast to get the answers. Otherwise, you can't effectively address the situation.



You'll have to learn about the rules and generally accepted practices that govern preforeclosure sales, and preforeclosure short sales. You should familiarize yourself with your jurisdiction's foreclosure laws and customs to be better able to identify the severity of the time sensitive problem and make sure there is adequate time to complete the sale. One of the first questions I would ask would be, " Has a Sheriff's Sale/Trustee's Sale been scheduled yet? Or about bankruptcy. "Have you filed for bankruptcy (any chapter) within the last 5 years?" You should learn the differences between Chapter 7 and Chapter 13, and how they impact foreclosure, and preforeclosure sales.



As some realtors know, homeowners currently in bankruptcy must obtain bankruptcy trustee approval to enter into a listing contract, and they must get bankruptcy trustee approval to enter into a contact to sell their home. Without prior approval, the bankruptcy trustee can declare the listing agreement and contract for sale void (there goes your commission.....)



Ask that the Homeowner provide copies of the most recent letters or court documents they've received from their foreclosing mortgagee(s), &/or their lawyers. You'll need to approximate (confirmed by a formal payoff or demand letter) the mortgage payoff(s), and the amounts for any other liens or potential liens against the property. Be certain to ask about the status of municipal property tax payments, any IRS problems, or other matters that involved the court. Ask that the Homeowner provide a current copy of a credit report... available free of charge from the major credit reporting companies. The credit report might disclose judgments that would have to be addressed before the passing of clear title could occur, or indicate other potential problems. Problems that will surface later on in the Title Report. It's best to address potential problems early on... than wait until the last minute.



Most short sale criteria require that the property is offered for sale, and sold in it's as-is condition... allowing no credits payable to the Purchaser for repairs (including termite, radon, roof, HVAC, etc.). You'll have to estimate the property's condition, and, if necessary, gather estimates for obvious repairs, helping to support a compelling short sale proposal.



You'll have to discuss the eventuality of "The Move" When. Where. How. And with what $$$.



Don't wait until the last minute to ask about the Seller's moving plan.... keep in contact with them. Don't simply accept their word that everything is OK. More often than not, they need help but are too embarrassed or ashamed to ask. If the (reluctant) Sellers don't have a place to go... they won't leave until the very last possible moment.... usually under threat of eviction. Since most if not all short sale approvals specifically disallow any proceeds from sale being returned to the Seller... the Seller might not have money to pay a mover or rent a truck, place a security deposit for alternative housing, or get utilities turned on.



Sometimes it becomes necessary for the realtor to help the Seller locate suitable, alternative housing and plan the move. Providing and helping to complete a rental application, registration with an affordable housing authority, or driving them to FRBOs (for rent by owner) can make the transition easier. You might also need to provide some boxes, box-packers, and a U-Haul. Sometimes, non profit organizations can provide volunteers to help... Making periodic donations to a locally active NP can't hurt and can only help... especially when your need for help coincides with the NP's humanitarian mission.



Make your Client comfortable with you, their situation, and themselves.



Be ready to step in and relay an anecdote or two about other folks in situations that you've assisted... to help address any of their as of yet unasked questions. Let them know that their situation is pretty common. More and more families today are facing foreclosure, perhaps for the first, or second or more times. If you know how many properties are sold at Sheriff's or Trustee Sales each month, or how many foreclosures are filed in your market area... pass along that information. If an REO has sold on their block... show them a snapshot with the address below, clearly printed. Let the Homeowners know that they are not alone. Try to help the Homeowner identify with others in his or her situation. Many other families have seen their household incomes halved, or eliminated. Many have experienced a marked increase in property taxes, making many homes and neighborhoods less affordable. Your Client may be a single Mom or Dad.... or grandparents who have generously taken on debt or other responsibilities for the sake of their separated or struggling children or grandchildren only to find the debt unbearable. The divorce rate is a proximate cause to mortgage foreclosures. ( In my opinion, many foreclosure situations could be avoided if divorce attorneys would insist upon expeditious division of property, said division enforced by the Courts. ) It's usually the Mom with the kids with the house. One spouse usually stops making one type of promised payment or another... either a mortgage payment, or alimony and child support.



Sorry.... sorta getting off track. Make certain that ALL owners sign the listing agreement. Ask to see a divorce decree....



I usually ask the homeowner if they've received any cards or letters about the foreclosure. The typical response is to make a pained expression, and produce a plastic crate filled with letters.... letters and cards of all colors, sizes, and shapes, many with attractive logos, ....many as of yet unopened. Tell them that simply because they are listing the house for sale doesn't mean that tomorrow the notices will stop... or that the frequency of phone calls or the volume of mail sent by real estate and mortgage brokers, bankruptcy lawyers, and letters and offers from speculative investors... will cease. They'll keep coming.



I'd ask the Homeowner to show me the one letter that had painted the best scenario for his/her situation... At least you have a starting point as to what they consider to be a good exit strategy and you'll know if their expectations are realistic. Their expectations, if overly optimistic must be reigned in early on in the process.



"Despite what the letter says, there is no 100% refi program at 2% available to people in foreclosure.. it just doesn't happen."



"Despite what the letter says, a Chapter 13 Bankruptcy plan isn't a walk in the park....many don't even qualify. Unless the underlying financial problem has been resolved.. most folks who go into a Chapter 13 to save their home... fail."



Etc.



Even though you've gained their confidence..... you'll probably have to do some amount of telephonic hand holding. Remember, you are the lifeline for these folks. Be straight with them...

The (short sale modified) listing agreement itself should contain several important clauses. Some lenders require additional, restrictive clauses, some require fewer, and some none at all.



1. This listing agreement and any contract for sale is contingent upon and subject to mortgagee's written, short sale approval. The listing agreement and a subsequent contract for sale might also need approval from a bankruptcy trustee, or a Private Mortgage Insurance company.



2. The property is to be sold in it's as-is condition. It's OK for the Buyer to have inspections done... but the Seller will not be permitted to pay for any repairs including termite treatments, radon remediation, or asbestos related problems. (These items should be disclosed early on and used to justify a reduced price offer.)



3. The Seller will receive zero proceeds from sale.



4. Mortgagee's written acceptance may take from 45 to 90 days... or more. I've had FAXed approvals within a day or so after submitting a Proposal, usually from junior lienholders, but I've also had deals languishing for 6 months to finally close... and it depends upon the mortgagee's policies..



While you are on the listing appointment, have the Seller agree to a price reduction in 30 days... and ask that they sign a price reduction form. Then, let them know what they are in for. They'll have to complete and return to their mortgage lender a myriad of financial forms, and financial documents including bank statements, current paystubs, tax returns, utility bills, etc., to used by the lender to confirm their hardship, and to justify granting short sale consideration.



* If they haven't filed an income tax return for awhile, encourage them to do so at their earliest opportunity.



If a Short Sale Facilitator brings you both parties to a transaction, you won't have to worry about finding a Buyer. But if you simply have the Seller... you'll have to market the listing... and possibly place it on an MLS.



As the listing is exposed to it's market, the short sale application process proceeds. Once the Sellers are prequalified by their lender for short sale consideration, the final documents in the short sale application process will be the Contract For Sale, and the estimated HUD1 which indicates the net proceed amount to the mortgagee(s).



Carefully screen potential Buyers. They'll have to be flexible, timewise, and financially qualified. They'll need to know that the home is sold in it's as-is condition. They'll need to know that once the Seller accepts the offer... it may take a month or two or three to get the approval from the mortgagee(s). Then, they'll have to close quickly... usually with 30 days.









Next Essay: Working with the Buyer in a Preforeclosure Short Sale