The importance of title insurance
When my husband and I purchased our first home, I was very young and very green. At the closing, our agent passed us our title insurance policy and said, “Put this in a safe place, and do not EVER throw it away.” At the time, I had absolutely no clue about title insurance, why it was important, and how it could save you from a world of trouble.
Decades later, working short sales, it’s the title reports and those dreaded liens that seem to be what gets us into all sorts of trouble. In fact, most of the reader questions that I received this past week related to title woes.
Three common short sale questions
Question: When I run the Statement of Information for my seller, it comes up with a child support lien and a mechanic’s lien. My seller says that he is aware of those liens, but has no money to make good on those debts. What should I do?
Answer: In short sales, the first lien holder will authorize funds from the proceeds to pay off a variety of expenses associated with the sale. These include commission, settlement fees, title insurance fees, and other mortgage liens. However, it is extremely uncommon for the short sale lender to offer to pay off a seller’s personal debts. Before you spend months and months processing the short sale, I’d strategize to ascertain whether you will be able to help the seller make good on these debts prior to closing. Otherwise, you should probably run like the wind.
Question: I am dealing with the IRS on a tax lien that needs to be released prior to short sale closing, and the IRS won’t budge. What should I do?
Answer: First off, it’s always a good idea to get non-institutional liens released early. At the time that you take a short sale listing, work with the title company to run a Statement of Information on the property owners. That way, if something comes up (like an IRS lien), you have plenty of time to work it out.
Generally, the IRS and the state tax authorities have mechanisms in place to remove these liens from title at no charge, since there is no equity coming from the sale. A tax attorney can guide you through the process. However, ask your title officer or title representative if they can work with you on this problem. The good news is that some title companies can help agents and you can avoid working with the IRS.
Question: I have a second lien on title with Chase Bank. Yet, when I contact Chase Bank, they tell me that the loan has been charged off and I need to contact the company where they transferred the loan. However, they do not have a record of where it was transferred. I’m between a rock and a hard place. What do I do?
Answer: This kind of chaos happens all the time with short sales, and it is very frustrating. Generally, if you contact the executive offices at the bank where the loan was held originally (in this case, Chase Bank), they can have their research department obtain information about where to call.
Another option might be to ask the lender for a “zero demand”. If they charged off the loan and show a balance of zero, then maybe they will send a zero demand and not further short sale negotiation would be necessary for this lien. Hey… without a second lien on title, maybe this won’t even be a short sale any longer!
How to avoid short sale buyer frustrations
Minimizing the frustrations that come with a short sale is often seen as a mythical possibility, but with these simple tips, any short sale transaction can go more smoothly.
Short sale frustration all around
Representing a buyer in a short sale can often be very frustrating. Primarily, that’s because of the unknowns associated with the short sale transaction. For one, nobody knows how long it’s going to take to obtain short sale approval. Actually, you don’t even know if you will get short sale approval. Not only that, but you also have to wait a fairly long time to learn the approved terms of the purchase. It’s frustrating to wait and wait, and then learn that the direction of the short sale is not the direction that the buyer is interested in taking.
Good communication is the key to short sale success. It’s vital for short sale listing agents to make communication with the buyer’s agent a regular and systematic part of the week. No matter how insignificant the short sale task, it is important to communicate with the buyer and the buyer’s agent and let them know that there are baby steps towards short sale approval.
One significant step towards short sale approval often comes after the bank’s valuation (BPO) when the bank makes a counter offer. Depending upon the short sale lender, this counter offer can come via email (in an email message), via telephone, or through an online platform such as Equator.
And then there are the counter offers…
Buyer’s agents and buyers often request to see the counter in writing. However, depending upon the short sale lender, this is often just not possible. Bank negotiators have contacted the short sale agent via phone, reviewed the settlement statement, and alerted the short sale agent as to what they will approve and what minimum net they might take accept in order to move forward with the short sale.
Since these counter offers usually do not come in writing, it’s important for the buyer’s agent to set the buyer expectations accordingly. Make buyers aware that there is lots of ‘verbal’ back and forth during the process. Many times it is only the short sale approval letter, the document that allows them to close, which comes in writing.
If buyers are willing to wait and keep the faith and understand that this process is a little more challenging and unique then most, they may find that they are getting a great deal on a wonderful property—often in better condition than the abandoned REO down the street.
Short sale: are there situations when agents can’t earn a commission?
Short sale: are there actually situations where an agent would not get paid? There are some complicated situations when it comes to short sales, and we address one here today.
A short sale listing agent recently reached out to me to ask whether an agent principal can earn commission in a short sale transaction. This agent, Agent Alice*, was told that there are certain situations where licensees cannot earn a commission when buying a short sale.
Agent Alice received an offer on her listing from Agent Alex. Agent Alex is both the buyer and the principal. Agent Alice wanted to know whether the bank would pay a commission to Agent Alex at closing, since he is both the buyer and a principal.
All of the major lenders including Fannie Mae and Freddie Mac employ some sort of arm’s length affidavit in which the buyers, the sellers, and the agents acknowledge (often in front of a Notary Public) that none has a business or familial relationship with another party outside of the transaction. Between this affidavit and investor guidelines for short sale commission, it is uncommon for the short sale lender to permit a commission to be earned by an agent principal.
Agent Alice then asked me whether Alex’s Broker, Broker Bob, could represent Agent Alex and earn a commission. While I do not work for the short sale lenders and cannot predict each short sale lender’s response, I’d say that it would be best to avoid this scenario, since the two have a business relationship outside of the transaction.
My two cents:
When I recently posed these scenarios to a group of agents, many shared creative ways to obtain a commission for Agent Alex. Remember that any creative solution whereby Agent Alex earns commission must also show his commission on the HUD-1 that is approved by the short sale lender prior to closing. As such, it is highly unlikely that there is a legitimate workaround for this problem.
The easiest and safest way for Agent Alex to purchase Agent Alice’s listing is to seek representation outside of his brokerage. Not only will this assure that the buyer’s agent earns a commission, but it will also assure that all parties comply with the requirements of most lender short sale addenda.
*The names of the agents and the brokers in this post are pure fiction. Any relation to real listing or buyer’s agents is merely coincidental.
What short sales and puppies have in common
It’s no secret that short sales come with a plethora of challenges, but like the challenges associated with raising a new puppy, they require patience and can be overcome.
Puppies Require Patience
I got a new puppy last weekend. It’s been awhile since I’ve had a puppy or a baby, or anything small for that matter. After observing the puppy for a short period of time, I was suddenly reminded about how much patience was going to be required when dealing with the new pet. The puppy was gravitating towards some yummy plant material over and over and over again. So, in addition to the patience and attention required to assure that Puppy did not eat the plants, we also had to develop a strategy (a workaround) for dealing with the tempting plant materials.
It’s the same with short sales; they require both patience and good problem-solving strategies.
Here are three of the most common short sale problems and some useful strategies for resolving them:
- Authorization is declined. At the beginning of the transaction, the seller will provide you with written authorization to speak with the lender on his (or her) behalf. Bank of America has a specific form for that, and some of the other lenders even have a dedicated fax number for submission of the authorization form. In order to avoid having your authorization declined, make sure that the seller signs with the very same name and signature that was used on the Deed of Trust. For example, if the seller has since gotten married, the seller may be signing differently now. Also, avoid using electronic signatures on the third-party authorization.
- The bank’s value is very high, and your offer is declined. After the short sale lender conducts a Broker Price Opinion (BPO), the bank employee may come back with a property value in the form of a counter offer to your submitted short sale offer. If the bank’s appraisal or BPO is high, the counter offer will also be high—perhaps well over market value. That’s when you need to inquire about the required documentation for valuation dispute. After all, if you want the bank to accept your offer, you will probably need to dispute their value. In order to do this, certain paperwork may be required. Submit that in a timely manner, and follow up regularly.
- Sometimes things are just not working out. Just last week, one of my deals was declined out of Equator because of a glitch in the computer system. So, they wanted us to start the process all over again. Another time, I had a negotiator continue to offer me HAFA after the seller had already been declined for the HAFA program. Those kinds of issues can arise during the short sale process. And, they can slow down the process significantly. The best solution for frustrating issues is to escalate the transaction. You can do that by asking to speak with a manager or by using social media.
Short sales require patience on the part of all parties. In addition, short sales require good problem-solving strategies in order to get issues resolved as quickly and efficiently as possible. That’s why short sales are kind of like puppies—except puppies are so much cuter!
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