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Loss Mitigation Officers, Gone Wild!

Loss Mitigation


The Market Dictates

Prior to 2006 Realtors seem to be in a constant fight with the lender to get loan packets to the closing table in time for the settlement. Now it’s an issue of getting permission for short sales. In either case responsiveness of the lender has always been an issue. The new twist however, is that they are not only ignoring you as an agent, but stealing your money as well.

Agents have established their commissions, regardless of flat fees or percentage based fees for their services, based on what a majority of the market would bear for these skill sets. Now, at a time, when purchasers are much harder to find, clients are far more demanding the need for highly skilled practitioners is greater than it’s been in a generation, the Lending industry has decided to take your money to offset the damages of their poor investments.

The M.O.

Before I went on staff as an Education Director I was working with a large number of listings, many of which were short sale and near foreclosure clients. My wife inherited these clients as she moved from assistant to primary agent. In watching her; working with other agents and teaching on distressed property sales I have heard the story over and over again about Loss Mitigation officers cutting the commissions when negotiating the short sale.

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The agent works themselves to death, the Seller swallows their pride and somewhere in the process, a buyer emerges. The buyer is not likely to pay the asking prices of yesteryear for a home today, because the chances of equity being available in the next few years is low. The offer to purchase is ratified by the principals and then sent to the Lender to review and permission to sell. If you’re lucky to get an answer from the lender it usually involves a cutting of the commission. The agents then have a huge dilemma – they can violate their fiduciary responsibility to the client and go without any money, or accept the theft of the Lender and salvage some money.

Being Left On Hold

Recently my wife had a seller loose a purchaser because the lender took over seven weeks to tell her absolutely nothing. In this case the purchaser made their offer and it was ratified. They forwarded to the 1st Trust, CIT Group, who promptly told her to send it to the 2nd Trust. That was the last prompt thing that was done. The entire point of being the First Trust is that you are in the driver seat. To send it to the second for review was a huge waste of time. She did however get 2nd Trust’s answer in a reasonable amount of time and ensured the 1st trust had a complete packet. She called diligently almost every day and was denied access to the “decision maker” who had the file on her desk. At one point (3 weeks later) she was told that they were still awaiting the BPO. She happened to know the BPO agent and was shown that it was sent in 3 weeks prior. Extensions were made by the buyer, who eventually walked away from the deal, as there were many other options available to the purchaser. My wife spoke to a “manager” two days ago, who was going to look into it. No one has called back and she still has no answer about the permission to sell the home.

Yeah, thanks for taking the seller’s house off the market for two months and loosing the only buyer they had; had in eight months. Way to serve your employer, Ms. “Loss” Mitigation officer.

Giving You A Pay Cut

If you’re lucking to get a lender rep to review the file, one of the first places they go is your wallet. Evidentially they think it’s OK to take your money. Why? There isn’t much you can do. Yes, you can say “no” to what avail? If you do, the transaction dies, your clients hate you and will re-list with a more willing participant. And isn’t it your responsibility to put the clients needs above your own? It’s a mess and there is no great answer. So, I suppose your children don’t get to eat, so that the Loss Mitigation Officer can look better to their bosses.

A Few Questions

1. Since the contract for compensation (the listing agreement) is with the Listing Broker and Seller, who the heck is the Lender to require the commission be split? Wouldn’t this be tort interference in any other instance? (I am not an attorney, so I’m really asking)

2. How would the Loss Mitigation Officer feel if their employer gave them their check and it was 33% of what their promised salary was? How long would they stay at their job, if the Lender explained that the 66% decrease was due to the employer trying to limit their damages for the Lender’s poor risk taking practices?

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3. For the Buyer Brokers… Why are YOU cutting your commission, didn’t the Listing Broker offer you a commission in MLS? Did the MLS commission offering, stipulate that you would be required to take less than promised, if they had to?

4. Why are agents working twice as hard for an almost guaranteed reduction in fees for their hard work only to act shocked and surprised that this was happening. Every time an agent comes to me shocked and bewildered that the commission was cut by the lender, I have to ask why they were involved in a listing that they were obviously not trained or experienced enough to handle.

5. Let’s take the lender out of the equation for second. If the Seller wasn’t getting enough money to sell their home and cover their cost, wouldn’t they reject an offer less than what is necessary to cover their financial commitments? Wouldn’t the buyer be required to increase their price if they wanted the house? Why in short sale situations, isn’t the answer to simply tell the buyer, if you want the house; you’ll need to increase your offer price. Your offer simply doesn’t cover the Seller’s bills….

For the Brokers

I can’t think of a better time for Principal Brokers to establish company policies that limit the number of Short Sale listings an agent can carry and to define that only well trained and capable agents be able to handle these special (actually becoming the norm in many markets) situations. How many Listing Brokers want to accept a listing where they may be paying a Buyer Broker more in commission than they are getting in total? Why aren’t Listing Brokers adding clauses to the Listing agreements that if the Seller fails to make timely mortgage payments, or agrees to work with the lender in a short sale, that the listing agreement becomes void?

If the Lender isn’t going to allow payment to an agent for working diligently to reduce the Lender’s loss, by at least getting a buyer for the short sale, than why are agents still taking on these clients?

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It’s A Mess

Whereas I am usually careful to try and see all options, I am not immune to the fact that these are troubled times for many markets around the U.S. But in this case the Seller’s are usually paying for poor financial decisions, the Lenders are are paying for loose lending practices; and the agent is the paying for???? I know that some agents could have done a better job of educating the buyer of their options and such when they originally bought, but most agents had nothing to do with the purchase when it comes time to list. So, why exactly is it, that the agent has to pay such a price for the loss of the lender?

( I don’t think I’ve ever used so many question marks in a blog post…)

Written By

Matthew Rathbun is a Virginia Licensed Broker and Director of Professional Development for Coldwell Banker Elite, in Fredericksburg Virginia. He has opened and managed real estate firms, as well as coached and mentored agents and Brokers. As a Residential REALTOR®, Matthew was a high volume agent and past REALTOR® Rookie of the Year & Virginia Association Instructor of the Year. You can follow him on Twitter as "MattRathbun" and on Facebook. Matthew's blog is TheAgentTrainer.com.

21 Comments

21 Comments

  1. Suzy

    April 18, 2008 at 9:55 pm

    I recently had the pleasure of working my very first short sale as a listing agent. The listing was a RELO referral and no one knew the sellers had not paid their mortgage in 7 months until we saw the auction notice in the local paper. We immediately got an offer on the property from a seemingly helpful agent with lots of short sale experience. What a total nightmare – this buyer agent turned out to be some sort of short sale shark who used what I later learned was every dirty short sale tactic in the book in order to get the price drastically reduced for a basically unqualified client. In doing so, this agent almost caused my client to go into foreclosure, as we were under a tight timeline. I was absolutely disgusted.

    I will admit I was unprepared for this transaction and it was definitely a trial by fire. Knoxville has never had a lot of foreclosures, so this is not an area most agents have ever had to know a lot about. Most agents in my office don’t really even fully understand what a short sale is. I have suggested that my broker offer some sort of training to agents, because going into a short sale with no experience is a very scary thing.

    And yes, the lender cut the commission on the deal. After that cut and the referral fee to the RELO network, I wound up working my butt off for virtually nothing.

  2. Jennifer Rathbun

    April 18, 2008 at 10:26 pm

    I still feel for the homeowners. I want to at least help them to have the opportunity to sell their home before foreclosure. It is a lot of work, but it has been worth trying. If my clients are willling to work, then I’m willing to work too! Some of these listings may fall through, but I still hope that a few will go to settlement and be worth the effort. Yes, I need to feed my family and I hope that I can express that need to the morgage companies. But should I not take the listing because it might be more work without enough compensation? If I receive a “thank you for trying to help us,” then I think it’s compensation enough.

  3. Natalie Langford

    April 19, 2008 at 8:05 pm

    Oh, this is so well written. It only supports what I’ve said in a recent post I shared for my local market. I explained what short sales were but went on to state that for anyone looking to list a short sale, I was not their agent! I’m not going to pretend to be an expert. I am comfortable enough to represent a buyer, but not yet confident in representing a seller. I hung on every word you wrote and had to go back and re-read parts of it. You asked some great questions and I look forward to the discussion…

  4. Bill Lublin

    April 20, 2008 at 12:14 pm

    Matthew – Timely post – I have a google alert on short sales and was given an alert to a link which had in it the following perspective from a lender – posted on CNBC’s Funny Business with Jane Wells

    Pat G. says she works for a lender. She got a call from a real estate agent arranging “short sales” (homes selling for less than the mortgage is worth) who referred to Pat’s business as “the stupid bank”:
    “I’m wondering if the agent is reducing her commission? Why is it okay for the seller to lose money and the bank to lose money, yet the Real Estate Community continues to earn their full commission?

    I feel that the Real Estate Community is now starting their own Predatory Sales Approaches. Advertising homes as ‘short sales’ or ‘pre-foreclosure’ is just wrong. There are no ‘short sale’ listings! Everyone is told upfront, we can’t pre-approve a short sale. Hence, the need for a contract. It’s not a ‘short sale’ until the Lender agrees, period. So to advertise it as such is misleading to the general public. Potential buyers feel the Lender has already approved the home for a short sale, and that it will be an easy steal.”

    I really sympathize with the situation as you described your wife’s experience, but it seems that what you see is determined to a degree by where you stand doesn’t it?

  5. Bill Lublin

    April 20, 2008 at 12:16 pm

    Jennifer- You keep on doing the right thing – It always pays off- sometimes more obviously then others, but its what makes you a professional (and yes, its just fine to be working to make a living- but you knew that)

  6. Matthew Rathbun

    April 20, 2008 at 2:39 pm

    Bill,

    There are lenders who will approve shortsales in the front-end, without a contract. I was along the same thought pattern of asking “should the agent be exempt from loosing money in this poor market”. I’ve answered my own question to say this – they are! The lack of buying and selling is already hurting the agent. So, in order to make a living, the agent can’t continue to work for “free” or near free for the work they are doing. The short-sale is a result of the Lender’s risk and Seller’s in ability to pay and not the agents failure at all.

    I think it’s important for the listing agent to remember that they can’t disclose the short sale status unless approved by the seller, as it’s confidential financial information of the seller. However, there are damages that can occur to the buyer if the short sale is not disclosed. I’ll outline those in a later post.

    So, to Pat G… are they willing to reduce their salary by 33% or more because their employer made some poor choices? I bet if we required loss mitigation officers to reduce their salary the same percentage as they reduce the agent’s – this issue would go away.

  7. Mack in Atlanta

    April 22, 2008 at 12:37 pm

    I received an email about a new designation – CSP. Certifies Short-Sale Professional. Has anyone else gotten this type of email?

  8. Matthew Rathbun

    April 22, 2008 at 4:55 pm

    Mack,

    I am actually going through the CSP instructor program now. It seems pretty good. Maybe not as good as the ABR Foreclosure elective, but pretty good, none-the-less.

  9. Maureen Francis

    April 22, 2008 at 11:39 pm

    There is no short sale without a long and sad story that goes along with it. Personally, I advertise that the buyers agent commission is subject to third party approval, and have the agent sign something that states they understand that before I submit their offer. Then I fight like heck to defend our commission and get the best deal for my client and the bank.

  10. Glenn fm Naples

    April 23, 2008 at 6:20 am

    Matthew – good questions within your post and I will offer some thoughts.
    1) We might be shooting ourselves in the foot when we put together a real estate transaction by cutting our commissions – normal transaction.
    2) Volume of business can offset the reduction in commission percentage, so it truly isn’t a pay reduction. In your analysis you referred to an employee – we are independent contractors. An employer and employee have a mutual agreement as to the pay, we are commission based.
    3) Our local board has addressed this issue, by allowing brokers to add to the confidential notes section of the listing that notifies other agents that the commission may be subject to reduction and needs to say how it will be allocated.
    4) Most real estate agents truly do not have the appropriate skill sets or resources (attorneys, title companies and tax advisers) to handle a short sale from the beginning. Prior to accepting the potential short sale listing, I do lots of research and review of the seller’s purchase – I do end up with less listings, but much easier to handle with the lenders.
    5) Unfortunately, in the potential short sale situation the monetary loss is for the lender – not the seller, not the buyer, not listing agent nor the selling agent.

    As Suzy mentioned in her post that her seller was 7 months behind in their payments and it was not known until the notice was published in the newspaper. My question is why didn’t someone do some research and find that a lis penden or NOD was filed previously?

    Real estate agents that want to get into the short sale business should be able to reverse engineer the entire real estate transaction, perform financial forenics, and understand the mentality used in the a collection process.

    My personal opinion on why potential short sales hang up is 1) the lenders are stupid when they tell people that are anticipating financial problems “we can’t help you now, but when you are behind in your payments call us back and we will be able to help you.” Years ago when mortgage insurance was used the education programs taught people to call if they were anticipating financial hardship. 2) the lenders are telling people two things – “don’t pay” and “you are in hopeless situation.” 3) the lenders are not thinking part of the pie is better than no pie – interest rate recasting. 4) too much “junk” transactions are hitting the loss mitigation departments, unrealistic prices as a method to force an idea of what the lender might accept.

  11. Jon Sigler

    April 23, 2008 at 7:36 pm

    If the lender didn’t get enough net for them, don’t accept the offer. Doing all this junk on commissions is only taking money from the people helping them out of the mess.

  12. Mack in Atlanta

    April 27, 2008 at 6:33 am

    There was a question posted by an agent on Trulia Voices about short sale pricing and how an agent had listed a home for less than the bank would accept to generate traffic and covered his rear end by putting in a “subject to bank approval” clause. Here is a twist on the commission portion of this discussion that was posted by Chris Freeman from Grand Rapids:

    I thought I would share a related anecdote regarding
    ————–“all offers are subject to bank approval”—————

    2 weeks ago, our board handled a grievance where the short sale in question was listed for (say $100,000, because I didn’t ask the actual price). They had the “all offers are subject to bank approval” clause in the listing.

    The offer came in at full price with no contingencies. The listing agent tried to get the bank on board, and they said “NO!” The deal was unable to go forward, BUT the selling agent filed a grievance for their commission and the board ruled in their favor. The listing Realtor had to cough up the commission.

    I am a little more skiddish about short sales since this ruling.

    The thing that actually makes me most nervous is that the board has not announced the ruling to the rest of the REALTORS. The only reason I found out is that I know the Realtor who lost the grievance.

    I guess there are no guarantees but death and taxes.

  13. Glenn fm Naples

    April 27, 2008 at 7:09 am

    I would have ruled against the payment of the commission, based upon the quote “all offers are subject to bank approval” as this is an upfront contingency – however, did the listing agent not add that clause to the offer and send it back as a counter-offer. By adding the clause to the offer or contract would have made it a contingency.

    We have been discussing issues with potential short sales in both the Legal Resources and MLS committees here.

    Our next go around should be on the pre-foreclosure and possible short sale listings where the seller moves and is not reachable via mail or telecommunications. This is an issue to the listing contract being a bi-lateral contract.

    Another issue is when a “short sale export” is handling the short sale aspects, the property is listed with another real estate agent and the “short sale expert” brings in a buyer.

    The potential short sale transaction has many issues which need to be addressed.

  14. Bill Lublin

    April 27, 2008 at 11:33 am

    @Mack in Atlanta;
    Your board would not make public a decision becuase all such decisions are confidential and you may (probably) have only part of the story, and none of the documentation, so don’t jump to coclusions

    @Glenn frm Naples – Your point about how you would have ruled has the same problem – we just don;t have enough info to make an infomred decisions (that’s why arbitrations take so long and som man y questions can arise.

    @everyone – I agree that negotiating the commission in a potential short sale situation in annoying at best, and I can understand why anyone would resent it, but we need to remember that we have an obligation to put our client’s needs before our own, and if we allow the commission to be placed in front of needs of our seller or buyer client, we’re just plain not doing the right thing.

    After all , the responsibility to pay us rests with the client, not the lender, so if you have a real problem with the difference in the earned commission and the negotiated commission you might want to address that with your client. But do you really think someone should face a foreclosure when there is a potential short sale just so we can be paid a specific amount? Or should the buyer lose the home they and their family will live in for that reason? And should the lender (who is already taking a loss) be responsible to pay a commission that they never agreed to pay? We’re no different in their eyes from junior lien holders who have even more to lose if the sale doesn;t go through.So while I don;t like it, I think we need to do the right thing to get the client what they need.

  15. Mack in Atlanta

    April 27, 2008 at 11:39 am

    @Bill This was not from my board. It was from the agent in Grand Rapids. I was just posting it in this forum for informational purposes.

  16. Natalie Langford

    April 27, 2008 at 9:36 pm

    I just had to comment on the @ sign being used. I’m getting pretty good at recognizing the twitter addicts!

  17. Bob

    April 28, 2008 at 5:14 am

    Call any loss mit department and you will hear a recorded message disclosing the debt collector status. By definition, the lender has an adversarial position. Simply stating that the short sale is subject to lender approval is not enough. A clause stating that the transaction is contingent upon seller approval of all lien holder terms and conditions any chance of should always be included in a counter.

  18. Glenn fm Naples

    April 28, 2008 at 6:14 am

    Bob – your “the transaction is contingent upon seller approval of all lien holder terms and conditions” is very inclusive and should be used – I know I will be adding it from now on. Yes the lender does have an adversarial position – it is called cutting their losses.

  19. Bo Buchanan

    May 1, 2008 at 11:33 pm

    Our MLS recently added a section to the SCI (special compensation information) section of the mls when we enter CC – it now adds the text “Requires Lenders Approval” next to commission offered. I hope this covers us here regarding the comment made by Mack in Atlanta. In too many situations, owners owe more than the property is worth. I would hope that if you show comps and a market analysis that you could back it up to the board. We also have a clause in our contract that says “Requires Third Party Approval” that should be checked with a short sale offer.

  20. Bluenote

    January 30, 2009 at 3:09 pm

    Every think that the time has come for Brokers to reduce their exhorbitant fees. While there are really great agent out there. Most aren’t worth the price of a gallon of gasoline!!!

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