Coaching
The Potential Perils and Pitfalls of the Electronic Signature
Are you for or against the use of the electronic signature?
While surfing the Internet today, I saw a blog post about the benefits of using electronic signatures in contracts. For those unfamiliar with the process, companies that provide electronic signature and contract execution services provide a quick and efficient way for buyers and sellers to execute a contract without a face-to-face meeting. It’s a great way to get things done quickly. In this day and age, it is all about getting things done quickly. Electronic signature and contract execution services are perfectly legal and eSign law compliant, but there are definitely some potential perils and pitfalls.
First and foremost, I pose the following question: Is it okay to send a client a contract electronically for them to sign without mutual discussion?
Personally, I like to sit with clients and review the contract, point out the main features, and discuss issues that may arise. I suppose that can be done over the telephone while the client is reviewing the contract electronically. Now, I have no problem with that. I also have no problem with a savvy real estate investor who has written hundreds of contracts reviewing the contract sans agent. But, what about the first time home buyer or a novice buyer? Just because that individual is tech-savvy, is it okay to zip them a contract for signature without mutual review?
My second concern and the motivation for this post is that pitfall of an electronic signature in the short sale transaction.
Despite the fact that electronic signatures are eSign law compliant, most of the mortgage lenders do not like ‘em. When working on a short sale package, the mortgage lender usually wants to see an original signature. If the seller is the one using electronic signatures, than the bank has a tough time verifying that the signature is authentic. After all, the seller’s signature is on the note and they usually like to compare that signature to the signatures that appear in the short sale package.
When approving short sales, many mortgage lenders also prefer ‘wet’ (handwritten) signatures from the buyers. In a recent submission of a short sale package a week or so before a foreclosure date, the bank actually refused to postpone the sale until they received a fully executed contract with original (and not electronic) signatures.
Personally, I could argue with the mortgage lender about this until I am blue in the face. But, is it worth it when I could use those very same five minutes that I spent arguing to obtain the original signatures? When working short sales, you want everything to go smoothly, quickly, and efficiently. One way to do that would be to avoid using electronic signatures on short sale transactions.
Coaching
Disputing a property’s value in a short sale: turn a no into a go
During a short sale, there may be various obstacles, with misaligned property values ranking near the top, but it doesn’t have to be a dealbreaker!
It’s about getting your way
Were you on the debate team in high school? Were you really effective at convincing your parent or guardian to let you do things that you shouldn’t have been doing? How are your objection-handling skills? Can you flip a no into a go?
When working on short sales, there is one aspect of the process that may require those excellent negotiation or debate skills: disputing the property value. In a short sale, the short sale lender sends an appraiser or broker to the property and this individual conducts a Broker Price Opinion or an appraisal, using special forms provided by the short sale lender.
After this individual completes the Broker Price Opinion or the appraisal, he or she will return it to the short sale lender. Shortly thereafter, the short sale lender will be ready to talk about the purchase price. Will the lender accept the offer on the table or is the lender looking for more? If the lender is seeking an offer for a lot more than the one on the table, mentally prepare for the fact that you will need to conduct a value dispute.
Value Dispute Process
While each of the different short sale lenders (including Fannie Mae) has their own policies and procedures for value dispute, all these procedures have some things in common. Follow the steps below in order to conduct an effective value dispute.
- Inquire about forms. Ask your short sale lender if there are specific forms that you need to complete in order to conduct a value dispute. Obtain those forms if necessary.
- Gather information. Your goal is to convince the lender to accept the buyer’s offer, so you need to demonstrate that your offer is in line with the value of the property. Collect data that proves this point, such as reports from the MLS, Trulia, Zillow, or your local title company.
- Take photos. If there are parts of the property that are substandard and possibly were not revealed to the lender by the individual conducting the BPO, take photos of those items. Perhaps the kitchen has no flooring, or there is a 40-year old roof. Take photos to demonstrate these defects.
- Obtain bids. For any defects on the property, obtain a minimum of two bids from licensed contractors. For example, obtain two bids from roofers or structural engineers if necessary
- Write a report. Think back to high school English class if necessary. Write a short essay that references your information, photos, and bids, and explains how these items support your buyer’s value. This is not something that you whip up in five minutes. Spend time preparing a compelling appeal.
It is entirely possible that some lenders will not be particularly open-minded when it comes to valuation dispute. However, more times than not, an effective value dispute leads to short sale approval.
Coaching
Short sale standoffs: how to avoid getting hit
The short sale process can feel a lot like a wild west standoff, but there are ways to come out victorious, so let’s talk about those methods:
What is a short sale standoff?
If you are a short sale listing agent, a short sale processor, or a short sale negotiator then you probably already know about the short sale standoff. That’s when you are processing a short sale with more than one lien holder and neither will agree to the terms offered by the other. Or… better yet, each one will not move any further in the short sale process until they see the short sale approval letter from the other lien holder.
Scenario #1 – You are processing a short sale with two different mortgage-servicing companies. Bank 1 employees tell you that they will proceed with the short sale, and they will offer Bank 2 a certain amount to release their lien. You call Bank 2 and tell them the good news. Unfortunately, the folks at Bank 2 want more money. If Bank 1 and Bank 2 do not agree, then you are in a standoff.
Scenario #2 – You are processing a short sale with two different mortgage-servicing companies. Bank 1 employees tell you that they cannot generate your approval letter until you present them with the approval letter from Bank 2. Bank 2 employees tell you the exact same thing. Clearly, in this situation, you are in a standoff.
How to Avoid the Standoff
If you are in the middle of a standoff, then you are likely very frustrated. You’ve gotten pretty far in the short sale process and you are likely receiving lots of pressure from all of the parties to the transaction. And, the lenders are not helping much by creating the standoff.
Here are some ideas for how to get out of the situation:
- Go back to the first lien holder and ask them if they are willing to give the second lien holder more money.
- Go to the second lien holder and tell them that the first lien holder has insisted on a maximum amount and see if they will budge.
- If no one will budge, find out why. Is this a Fannie Mae or Freddie Mac loan? If so, they have a maximum that they allow the second. And, if you alert the second of that information, they may become more compliant.
- Worst case: someone will have to pay the difference. Depending on the laws in your state, it could be the buyer, the seller, or the agents (yuck). No matter what, make sure that this contribution is disclosed to all parties and appears on the short sale settlement statement at closing.
- In Scenario #2, someone’s got to give in. Try explaining to both sides where you are and see if one will agree to generate their approval letter. If not, follow the tips provided in this Agent Genius article and take your complaint to the streets.
One thing about short sales is that the problems that arise can be difficult to resolve merely because of the number of parties involved—and all from remote locations. Imagine how much easier this would be if all parties sat at the same table and broke bread? If we all sat at the same table, then we wouldn’t need armor in order to avoid the flying bullets from the short sale standoff.
Coaching
Short sale approval letters don’t arrive in the blink of an eye
Short sale approval letters may look like they’ve been obtained simply by experts, but it takes time and doesn’t just happen with luck.
Short sale approval: getting prepared, making it happen
People always ask me how it is that I obtain short sale approval letters with such ease. The truth is, that while I have more short sale processing and negotiating experience than most agents and brokers, I don’t just blink my eyes like Jeannie and make those short sale approval letters appear. I often sweat it, just like everyone else.
Despite the fact that I do not have magical powers, I do have something else on my side—education. One of the most important things than can lead to short sale success for any and all agents is education.
Experience dictates that agents that learn about the short sale process
have increased short sale closings.
Short sale education opportunities abound
There are many ways to become educated about the short sale process and make getting short sale approval letters look easy to obtain. These include:
- Classes at your local board of Realtors®
- Free short sale webinars and workshops
- The short sale or foreclosure specialist designations
As the distressed property arena grows and changes, it is important to always stay abreast of policy changes that may impact how you do your job and how you process any short sale that lands on your plate.
The most important thing to do is to read, read, read. Follow short sale specialists and those who blog about short sales on AGBeat, Google+, facebook, and twitter. Set up a Google Alert for the term ‘short sale’ and you will receive Google’s top short sale picks daily in your email inbox. Visit mortgagor websites to read up on their specific policies and procedures.
Don’t take on too much
And, when you get a call from a prospective short sale seller, make sure that you don’t bit off more than you can chew. Agents in most of America right now are clamoring for listings since we are in the midst of a listing shortage. But, if you are going to take on a short sale, be sure that it is a deal that you can close. And, if you have your doubts, why not partner up with a local agent that can mentor your and assist you in getting the job done? After all, half a commission check is better than none!
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Fred Glick
March 2, 2010 at 9:03 am
The dinosaurs that run the mortgage companies (Flagstar excluded) and the real estate agents of yesteryear do not understand that the digital signature federal law was passed in the 90’s.
It’s because they are scared of the new technology and put up a defensive attitude in order to shade the unknown.
How is it solved? Make it a requirement…but that will never happen.
With the agents, they will eventually come around when the companies realize the amount of dollar savings for paper, security and storage.
The mortgage companies will require it when Fannie, Freddie, FHA and VA will only accept it as the way to deliver a loan.
Until then, like most things in the business, the strong, smart and ethical will survive!
Jim Duncan
March 2, 2010 at 12:37 pm
What was the blog post you saw?
I’ve been using DocuSign for a few months and while they are efficient, green, great, wonderful … NO ONE accepts them.
Correction: 1 lender has been ok with them.
So … they’re great for getting the conversation started and for working with my out of state and international clients, but they’re not useful for actually getting things through the lenders.
Melissa Zavala
March 2, 2010 at 7:53 pm
It was just a blog post advertising the electronic signature services (not on AG). That’s what got me to thinking about the potential pitfalls. Thanks for taking the time to post a comment!
Jordan
March 2, 2010 at 1:48 pm
I use docusign only as a “must do” basis. If at all possible, I avoid it because the lenders generally are not okay with it. However, my lenders are in my network of business associates and I speak with them often, so I inform them that we “had to” use docusign to get a buyer under contract and if, at a later date, we need to have them initial in person, they are okay with that (usually happens at the closing table). I also provide them with the certificate of completion that docusign gives me showing the security levels and such.
I’m definitely a fan, but it has a time and place. (I especially love it for listing amendments and extensions!).
Jeremy Isaac
March 2, 2010 at 3:30 pm
I agree that lenders can be stubborn about accepting the eSignatures, but they have been gradually coming around. The way to encourage their continued adoptions isn’t to just give up and go back to all original signatures. Many, if not most, lenders are OK on the REO side already, so I’d expect their short sale divisions to catch up eventually.
As for the concern with reviewing the contract; I think that is a real issue that we have to address. I had a couple times where clients signed electronic documents prior to our scheduled phone review (against my instructions). However, I’ve made some changes as to how I approach it to make sure we have a good opportunity to review. This isn’t a case against electronic signatures though – only that we need to use them responsibly.
Melissa Zavala
March 2, 2010 at 7:55 pm
I agree with you that the bottom line is that this service needs to be used responsibly! I suppose that is one of the underlying points of my post!
An Bui, DocuSign Social Media
March 2, 2010 at 4:52 pm
Melissa – great blog post. I especially like your point about whether one should send one’s client documents for electronic signature prior to discussion. It’s a call for the agent to make, about what would best serve his or her client. DocuSign has a premium feature, “in-person” signing that enables the agent to do in-person electronic signature. Additionally, an agent can opt to use DocuSign’s standard service, send it to his or her client’s email, have the client log into his or her email remotely and walk the client through the paperwork and have him or her eSign. This process will keep everything paperless, until wet signatures are requested.
DocuSign provides safe, secure electronic signature, and also includes an option for “Sign on Paper” so that any documents with wet signature can be stored and tracked through DocuSign’s secure system.
Jordan’s approach to dealing with lenders is one I’ve heard from other real estate professionals as well – great for getting offers on the table first, or in highly time sensitive situations, and when the offer’s accepted, wet-signatures at closing.
DocuSign is working with the Electronic Signature and Records Association (ESRA), FHA and the major banks to get a policy in place regarding lender acceptance. I’ll let you know more as progress is being made.
Best,
An
Nashville Grant
March 2, 2010 at 5:05 pm
The issue with a client signing a document that has not been fully explained to them is a moot point in my opinion. As the broker of the transaction, you are in charge of when you send these documents to your client and with an e-Signature system, it is very simple to send a corrected document to them and get it back asap. In fact, for my more savvy customers who are multi-taking their brains out, I typically send a Google chat invitation along with the e Docs in case they have any questions. I am very much in favor of the e-Signatures and hope that lenders catch on soon.
ericaramus
March 2, 2010 at 5:05 pm
I have had a few problems getting dinosaur AGENTS to accept that docusign sigs are legit. But I have not had one bank reject them yet. I have not tried them on short sales or on HUD homes, and won’t dare mess with their rules.
My one concern is are the buyers/sellers reading what they’re signing?
In person you can point things out and go over them. Online, it’s click click click done. THat’s good and bad.
In my email to anyone I send paperwork to, I emphasize they should print out and read thru and call me with any questions/concerns.
Brad Yzermans
March 3, 2010 at 1:28 am
I love digital signatures but I will disagree with Fred’s comment about Flagstar. Flagstar is one of my favorite lenders and we have a banking line with them but they do not accept digital signatures. For a company who claims to be the leaders in paperless technology it is ironic they don’t accept Docusign on the purchase contract.
Carrie Consolvo
March 3, 2010 at 7:18 am
I closed my first deal using Docusign yesterday and it would have gone smoothly if the title company had followed the lender’s instructions of having the buyer’s sign a contract at closing. The lender only accepts “wet” signatures. Now I know to bring a hard copy of the contract at closing, but it does defeat the purpose of saving paper. I have to give my two cents about Flagstar. Their underwriters will override appraisals in order to drive the price down on the sale of a home. It’s not only bad for the sellers because they end of having to sell below market value but it also drives down the value of the homes in the neighborhood. What is the point of having an appraisal if they are going to override it?
Ben Thomas
March 3, 2010 at 10:07 am
Short sales are such a pain in the neck, that the hassle of getting original signatures on a doc are 1/1000th the effort you are about to spend on the transaction!
I’m going to try and focus on selling the property where the seller can actually perform, and, oh yeah, maybe we’ll use electronic signatures too!
But in Vermont, property values may be slightly less underwater than other areas, although still not stellar.
Fred Glick
March 3, 2010 at 11:27 am
What are the lender’s reasoning not to accept the digital signatures?
Jeremy Isaac
March 3, 2010 at 11:30 am
It’s interesting that everyone here seems to be talking about DocuSign. Anyone else use CTM eContracts? That seems to be the default here in Colorado…
Nick Sweeney, DotLoop Social Media
March 3, 2010 at 11:52 am
This is great discussion and I think Fred had the best response in that companies will come around once they see the economic benefit of online signatures in terms of security, storage, and paper costs. However, if a lender refuses to accept an electronic signature, they’re basically violating the law, so I would suggest asking them their reasoning for rejection.
Electronic signatures are safe (even more-so than ‘wet’ ink signatures, since they can be tracked more easily) and help quicken the process. At DotLoop, we make the entire transaction process not only easier (no need to hunt down clients for signatures), but more secure as well. And, unlike other PDF-centric form technologies, our process is completely paperless.
Buying a home is most likely the largest single purchase you’ll make in your life, so why would you want the terms scribbled on the margins of a contract, with no trackability or (oftentimes) legibility?
We bank online, we shop online, we can even buy cars online. So, why are real estate agents still using antiquated technologies and bothering their clients just to get an initial on a slight change to a contract?
This will eventually change; once the Millennial generation are the first-time home buyers, they simply won’t accept the stacks of wasted paper. Nevermind that most have never used a fax machine, another obsolete technology.
Clients are already driving the change within the real estate industry; more than 90% start the home-buying process online. Soon enough, they’ll end it online, too. With DotLoop, they can do so today.
Great blog, Melissa!
Jeremy Isaac
March 3, 2010 at 12:00 pm
Nick,
We appreciate you joining the conversation, but your post could rightly be considered spam. You may want to focus more on contributing to the conversation and less a on directly promoting your service. (After the first paragraph, it appears you c&p’ed the rest of your response from your own promotional materials)
Meredith W
March 3, 2010 at 12:34 pm
Jeremy,
I personally don’t feel as if he infringed on anything with his post. At least, no more than Docusign did previously. Both DotLoop’s and Docusign’s representatives posted relevant, helpful information.
Jeremy Isaac
March 3, 2010 at 1:28 pm
Meredith,
I had missed the DocuSign post or I may have said something then too 🙂 I guess we all have different standards for what *exactly* is spammy and what is not – admittedly, it is a blurry line.
Benn Rosales
March 3, 2010 at 1:31 pm
I only ask if ES makes for a more informed consumer? You won’t actually know because you weren’t there to make sure details are read and understood- is that the agent’s problem? Some argue that it is, and I can only imagine lenders feel that same pressure even more. Fast and speedy isn’t always in the best interest of every party, but I’m betting that ES wins the debate in the long run.
Nick Sweeney, DotLoop Social Media
March 3, 2010 at 2:13 pm
I agree, Benn. Ultimately, any ES is just another tool an agent can use. You’ll never be able to replace the actual relationship with technology, because people respond to people better than they do machines. Hopefully, though, we’re still years from SkyNet becoming self-aware 🙂
Melissa Zavala
March 3, 2010 at 5:13 pm
Thank you for such an engaging dialogue. Really my point was that banks are not yet on board with the electronic signature revolution. That being said, it is also vital to use this system (or platform) responsibly and ethically–which not everyone is doing at this time.
Christine Mendoza
March 22, 2010 at 12:59 pm
Lenders are lagging behind on electronic signatures, but some seem to finally be coming around. We use RightSignature and our Clients often comment on how much easier and quicker the process is with it.
The technology is there, legislation has made them binding, now it’s just getting people and industries used to a new way of doing things…
Travis Foote
April 19, 2011 at 7:33 am
I've used Docusign on HUD foreclosure sales. No issues there. You'd think if the GOV accepts them, the lenders would too.