Coaching
Using electronic signatures in short sales is not a good thing
Last week, I wrote a short but sweet post that reviewed the Top Eleven Ways to Get Your Short Sale Approved in 2011. I didn’t spend too much time elaborating on my Letterman-style Top 11 because I actually think that many of the items on my list need a dedicated discussion.
The one item on the list that people seem to enjoy talking about the most is the electronic signatures. I stated that in order to get your short sale approved in 2011, “Do not use or accept electronic signatures.” Specifically, when I say not to use or accept them, I am referring to using or accepting electronic signatures on any documents that will be forwarded to the lien holders in order to process the short sale.
Please do not argue with me on this one. Yes, I already know that electronic signatures are completely legal. In fact, effective January 1, 2011, California Realtors® now have access to an electronic signature platform included in our annual membership dues. But, I can tell you from experience (lots and lots of it) that many of the banks don’t give a lick that electronic signatures are legal.
Let’s try to see it from the bank’s perspective.
The authorization is submitted to the bank in order for an agent to speak to the bank on behalf of the borrower. This is a big deal, and the bank wants to assure that the authorization is legitimate. So, the bank will likely compare the seller’s signature on the authorization to the seller’s signature on the note or deed of trust. If the seller signs the authorization using electronic signature, how exactly will the bank be able to confirm that this is a legitimate document?
While I cannot make the same argument for the short sale buyers, I can say that a number of the major lending institutions will absolutely not accept electronic signatures on any documents. So, if you do not want to lose a few days scrambling to get original signatures while your short sale negotiator has moved on to another file, submit your short sale package right the first time. Do yourself a favor and avoid using electronic signatures in short sale transactions.
Photo: flickr creative commons by ktylerconk
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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Bruce Lemieux
January 11, 2011 at 7:24 am
This has been my experience. However, I think you give the bank too much credit. Do you really think they will “likely compare the seller’s signature on the authorization to the seller’s signature on the note or deed of trust”? I think not. I think this is just another reflection of their overall administrative incompetence.
Melissa Zavala
January 11, 2011 at 10:32 am
I say this because I have seen countless authorizations that were not accepted by the banks. And, when comparing the signature on the note to the signature on the authorizations in those cases, we see that they do not match–that perhaps people have gotten divorced and remarried, names have changed, etc.
Fred Romano
January 11, 2011 at 8:14 am
Just because e-signatures are legal doesn’t mean they HAVE to accept them. They can certainly have their own internal requirements. Putting myself in their position, I would want “wet” signatures too.
Dean Ouellette
January 11, 2011 at 8:37 am
Little pisses me off more than this fact. 6 months ago everyone but wells took them, now they all give you a hard time. Electronic signatures are secure and should be accepted, but as you say until they realize it wet it is.
Randy Pereira
January 11, 2011 at 9:54 am
Considering all the information related to lenders and their disregard for proper procedure, I highly doubt banks are going to verify the signature with that on the note, or deed. However, each bank has their own process… why not just ask the specific lender you’re dealing with, if electronic signatures are acceptable?
Melissa Zavala
January 11, 2011 at 10:34 am
Randy: You can certainly check with the specific bank that you are working with before submitting the offer. But, if there are two or three loans on the property at two or three different banks and if you are working five or ten short sales simultaneously (as many agents do), it may just be simpler to set your own policy not to accept electronic signatures.
Bruce Lemieux
January 11, 2011 at 10:53 am
This is the best advice. In my experience, a bank was OK with electronic signatures – until they weren’t. Getting wet signatures was yet one of many factors that delayed the approval process. The banks look for reasons to drag out the process (do I sound bitter?). Do everything you can to remove potential obstacles.
Randy Pereira
January 11, 2011 at 5:51 pm
Melissa: That is a great point. I can see where that would become more of a headache. Any convenience gained from using an electronic signature would definitely be lost, in that scenario.
Benjamin Ficker
January 11, 2011 at 10:42 am
I’ve only had one bank not take them and that was my first short sale with EMC. Since then, if it is Fannie or Freddie, I email them a link to the Freddie Mac E-Mortgage guide (freddiemac.com/singlefamily/elm/pdf/eMortgage_Guide.pdf) and I have yet to be turned down for it.
I love when they tell me they need a wet signature, so I ask where they want me to mail the original documents. There is a pause when they start to realize that a faxed document is an electronic representation just as much as docusign. “Uh, we don’t accept electronic representations of signatures.”
Melissa Zavala
January 11, 2011 at 6:56 pm
Ah…. what a tangled web we weave. Good point about the irony of using the fax to send the wet signature to the bank.