Effective November 1, 2012, there are new guidelines for all Fannie Mae and Freddie Mac short sales.  The new program, dubbed the Standard Short Sale /HAFA II requires Fannie and Freddie servicers to manage short sales under one uniform process.  It is anticipated that this new streamlined process will make short sales faster, easier and more accessible to underwater borrowers.   Under the new program:

  • Homeowners do not need to be delinquent on their mortgage payments if they meet other hardship criteria.
  • Deficiency judgments will be waived in exchange for a cash contribution from certain qualified homeowners.
  • Military personnel who are relocated will automatically be eligible.
  • Up to $6,000 will be offered to  2nd lien holders to speed the process.

The new hardship criterion includes:

  • Death of a borrower or  co-borrower
  • Divorce
  • Unemployment
  • Disability
  • Relocation for a job

The good news is that this program should allow more homeowners to participate in a short sale and get out of a negative equity situation, even if they are not delinquent on their mortgage.  The bad news is that even with no missed payments; their credit will suffer as they will have settled their mortgage debt for less than the amount owed.  In the world of credit reporting, a short sale is a short sale, whether or not there was ever a missed payment or a Notice of Default recorded.

Overall, HAFA II should allow more homeowners to take advantage of a short sale and standardized processing can’t help but improve the whole experience for everyone involved.  As a Realtor who lists and negotiates short sales, I welcome anything that will streamline the often cumbersome and lengthy process.

If you live in San Diego County and are considering a short sale, or if you’re an agent looking to out-source negotiation, please call me for a confidential no-obligation consultation.

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If you owe more than your home is worth, and are having difficulty making your payments, you may be a good candidate for a loan modification or a short sale.  The important thing to realize is that this problem won’t go away on its own and the sooner you attempt to deal with it, the better your opportunity for a positive outcome.

However, before you pick-up the phone to call your lender, be prepared!  The person on the other end of the call is going to do a phone interview during which they will ask very detailed questions about your income and expenses.   In order to be ready you will need the following items:

  • A completed financial worksheet which outlines ALL of your income and monthly expenses. Make sure that the income you state matches the deposits to your bank accounts!
  • Last 2 months pay stubs or year-to-date profit and loss statement if self-employed.
  • 2 most recent bank statements for all accounts
  • Hardship letter
  • Last 2 years federal tax returns

This initial interview is a sort of triage, where they try to determine, what program, (if any), might work for your situation.  The more information you have available, the quicker you will be able to move to the next step.  Even if the interview doesn’t include questions related to your tax returns, these are the items they will want you to send to them so it’s best to gather everything before you get started.  When you do send or fax, make sure that your name, phone number, email and loan number are on a cover sheet with a list of the items included.  For the initial packet of information it may be best to send with a delivery confirmation so that you have proof of mailing and delivery.

Your hardship letter should clearly explain why you can no longer afford your mortgage payments.  You obviously could afford them at the time the loan was originated, what happened to change that?  Job loss?  Death of a spouse? Divorce?  This should be a heart-felt letter addressed To Whom It May Concern and be no longer than a couple of paragraphs.  Just state the facts.  It is helpful to write the letter before you call so that you have an answer ready when the interviewer asks.

On this initial interview, and all subsequent phone conversations keep a log, noting the date, time, who you spoke with and the key points of your conversation.  Always ask about the time frame for the next steps and be prepared to follow-up!  Never assume that something is happening….chances are good that your paperwork may become lost, so be ready to re-send it.  And if you don’t feel like you’re getting anywhere, ask to speak to a supervisor.  But remember that the folks working in the loan workout department are probably over-worked, and a nice comment and a polite “thank you” will make the process less stressful for everyone involved. 

Best of luck! Don’t hesitate to call or email with any questions. I also have a great Excel Financial Worksheet that I’m happy to share.  Just send me a request to marti@kilby.com.

 

In the second of a 2-part series, San Diego real estate broker Marti Kilby explains the short sale process.


 

San Diego real estate broker Marti Kilby explains the short sale process and what you can expect.  This is part I of a 2 part series.


 

 

Yippee! We finally have an offer that looks like it will stick. So on Monday I submitted the offer to B of A and a complete short sale package to the new servicer for the 2nd lien holder. As you may remember, the borrower had already started the process for the Bank of America Cooperative short sale before we even put the home on the market, so at this time the only items requested by B of A include the offer and an estimated settlement statement.

So the clock started ticking on Monday, October 17. Let’s see how long this process really takes. Bank of America of course advertises that their cooperative program is executed more quickly than a traditional short sale….

Yesterday, I received an email from B of A notifying me that the original negotiator to whom I had emailed the offer and HUD statement had been promoted and she would no longer be my contact. A new negotiator has been assigned and I was assured that the file would be passed to her and that I could expect to hear from her shortly. Nothing so far today….

Whether you’re considering a short sale purchase, or the short sale of your own home, understanding the process will relieve some of the stress.  So here is what you can expect in a short sale. 

The first thing to understand about a short sale is that unlike a traditional equity sale there is an all-important 3rd  party that controls the fate of the deal:  And that’s the lender.  In order for a short sale to occur, the lender or lenders must approve the transaction.  This involves 3 items for their consideration:

  1. Can the current owner show sufficient financial hardship to prove that he cannot pay his mortgage?
  2. Is the price offered consistent with comparable sales in the area?  Obviously the bank wants to re-coup as much of their investment as possible.
  3. Will the bank or investor agree to settle for less than the amount owed, or will they choose to foreclose?

Step #1 – Pre-Qualification

Before taking a short sale listing it is the job of the Realtor to understand the financial requirements and pre-qualify the seller.  This involves having the sellers complete a financial worksheet and reviewing their income and assets.  Whether buying or selling, this is a critical step and one reason why working with an agent that is experienced in short sales is important.  If the sellers don’t financially qualify, there is no point going any further. 

Step #2 – It’s all about the Documentation

Once it has been determined that the sellers qualify, the Realtor or qualified short sale negotiator, will contact the seller’s lender and determine the exact requirements for submission as they are all slightly different.  It will also be determined at this point if the lender participates in the government HAFA (Home Affordable Foreclosure Alternatives) program as there may be incentives for both the sellers and the lender, and certain procedures may be streamlined.  In any case, the Realtor will work with the sellers and collect all the necessary documentation.  This will include:

  1. A statement of general information
  2. Financial worksheet
  3. Handwritten letter explaining their hardship
  4. 2 months pay stubs or year-to-date Profit and Loss statement if self-employed
  5. 2 months bank statements
  6. Tax returns for the last 2 years
  7. Most current statements for all retirement accounts or other assets
  8. Authorization form to allow the Realtor or negotiator to speak with the lender.

Step #3  – Selling the Property

The house is listed for sale as a short sale.  Both listing and selling agents must agree to equally split whatever commission the lender decides to pay.  Once an offer is received the Realtor should carefully examine it and make sure that it is an offer the lender is likely to accept; the price should be consistent with comps; the offer must not be contingent on the sale of the buyer’s home; and the buyer must understand that it is unlikely that the lender will pay for any termite work or other repairs.

Step #4 – Submission of the Short Sale Package

The listing Realtor or negotiator submits everything to the lender for approval of the short sale and the listing is noted in the MLS as “Contingent”.  Again, it is important to have an experienced Realtor who makes sure that the submission is not only complete, but that it is packaged neatly and easy to read and understand.

The package goes to a special department at the lender where it is reviewed.  If there is any documentation missing or unclear, they will request additional information. Unfortunately, even this initial review can sometimes take 4 weeks or longer and often paperwork disappears and duplicates must be supplied.

Once this initial review is completed and the package confirmed as complete, a negotiator representing the lender will be assigned.  It is the job of this negotiator to carefully review the file and make a recommendation as to whether it should be approved, or not.  If there are 2 lenders (as in a 1st  and 2nd  mortgage), this entire process must be completed for both lenders. 

Step #5 – Negotiation

During the review and negotiation process, the lender’s negotiator may counter specific items in the offer including the purchase price and the requested commission.  In the case of the second mortgage holder (who stands to lose the most), they may push for a bigger contribution from the 1st  lien holder as in California they can no longer request that the sellers make a financial contribution.  Again, this is where experience counts.  The seller’s Realtor or negotiator should be in communication with the lender’s negotiator several times a week, working to move the deal along and arrive at terms that are favorable to the seller and buyer.  This part of the process can drag on for weeks, or even months, although some lenders have streamlined the process.  Also, keep in mind that many of the 2nd  mortgage holders won’t even begin the review process until the 1st  lien holder has approved the sale.

Step #6 – Approval

If the lender’s negotiator recommends approval, the file goes to upper management or the investor for final approval.  Generally speaking, if the file makes it this far, it is usually approved.  But again, this final leg of the process may take an additional two or more weeks.

And finally, the letter everyone has been waiting for – the approval letter.  Assuming all terms are acceptable to sellers and buyers the sale will now proceed as a “normal” sale.  The approval letter will stipulate a date by which the sale must close or the approval is no longer valid, usually 30 days.  Hopefully the buyer has hung-in during the approval process, and at this point the clock starts ticking for buyer inspections and contingency removals.

Navigating a short sale as either a buyer or seller can be overwhelming, and some of the items noted above may vary depending on the state you live in.  In any case, making sure you’re working with an experienced short sale Realtor is the best way to protect your interests. 

 

With short sales accounting for over 17% of all sales in July, and thousands of homeowners upside down on their mortgages, the California Association of Realtors believes that short sales will be a part of the real estate market place for years to come.  Economic growth just isn’t happening quickly enough to keep pace with the number of homeowners who are sinking closer to foreclosure with each passing month.  For many, opting to sell their home in a short sale is the best option because of the less damaging impact on their credit.  But agreeing to list a short sale can be the start of an uphill battle for the Realtors involved. 

One of the biggest issues facing short sale transactions is the time involved for even a preliminary review of the offer and submitted documentation.  This step alone can often take one to three months before the lender even assigns a negotiator to the file.  Another annoying reality is lost or misplaced documentation.  With many lenders one feels that there must be a trash can on the other end of the fax machine as requests for the same documentation are made over and over.  All of this takes time…and the buyer is often out there still looking for something they can buy more quickly, with less hassle.

The California Association of Realtors has recently sent urgent requests to the heads of all the major lenders, JP Morgan Chase, Bank of America, Citigroup and Wells Fargo with recommendations about how the whole process can be streamlined.  A few of the items requested include:

  • Realistic timelines
  • A thorough explanation for short sales that are denied
  • Up front disclosure about who really owns the loan and can make a decision
  • Pre-approval of the short sale and price prior to marketing the property
  • Increased pay-off to the junior lien holder

As a dues paying member of  C.A.R. and a Realtor in the short sale trenches I’d be thrilled to see even one or two of these recommendations become part of lender procedure.  In the meantime, I’ll just be the one on the phone politely nudging them along, every step of the way.