I get questions regularly from brokers who are concerned about how the terms they outline in Form 22SS will affect how the bank reviews the short sale offer. Contrary to what you might expect, many lenders don't review Form 22SS at all. Banks will look at the contract, but they're not concerned with the terms. In a short sale, the bank alone dictates the terms, from sale price to closing date. They will look at the net proceeds, and also check to see if there is an addendum that outlines concessions that they will not allow, such as having a seller live in the property after the sale and pay rent. Concessions of this type will all but guarantee that the bank will not approve the sale.
While Form 22SS is of little consequence to the lender, it is critically important to your client. Form 22SS clarifies the process and terms that the buyer and seller agree upon in order to complete the sale. That includes:
▪ Whether timelines in the agreement- such as deposit of earnest money or inspection- begin upon mutual acceptance rather than the delivery of lender consent
▪ The number of days a seller has to deliver lender consent to the buyer
▪ The conditions under which the buyer can terminate the contract
It's very important to fully understand the implications of how you fill out the form. For example, in Paragraph 4 TERMINATION BY BUYER, if you check neither of the boxes, the buyer can terminate the contract at any time for any reason. With all these options and variables, Form 22SS can be confusing. If you need assistance with your transaction, we're happy to help. Call Richard Eastern at (206) 612-5541.
Monday, April 2, 2012
Tuesday, March 27, 2012
Short Sale Myths vs Reality: Closing Time
Many agents and buyers have shied away from short sales because they hear horror stories about them taking 3-6 months to close.
Here's a reality check: In the hundreds of short sales we've closed, the time from mutual acceptance to Lender Consent has averaged 60 days. If someone is inexperienced with short sales, that process can take considerably longer. Short sales require significantly more paperwork than a traditional sale, and if you don’t have a system for collecting and submitting that paperwork to the lender according to their individual requirements, things can really bog down. Many large lenders use a platform called Equator for all aspects of the short sales process, from submitting paperwork to ongoing communication. For those not familiar with Equator, getting up to speed on the software will also prolong the sales process. Most brokers we work with prefer to spend their time building their core business, and leave the short sale negotiating work to short sale specialists with a dedicated staff that handles all the details.
Here's a reality check: In the hundreds of short sales we've closed, the time from mutual acceptance to Lender Consent has averaged 60 days. If someone is inexperienced with short sales, that process can take considerably longer. Short sales require significantly more paperwork than a traditional sale, and if you don’t have a system for collecting and submitting that paperwork to the lender according to their individual requirements, things can really bog down. Many large lenders use a platform called Equator for all aspects of the short sales process, from submitting paperwork to ongoing communication. For those not familiar with Equator, getting up to speed on the software will also prolong the sales process. Most brokers we work with prefer to spend their time building their core business, and leave the short sale negotiating work to short sale specialists with a dedicated staff that handles all the details.
Wednesday, March 21, 2012
Major Changes Coming to HAFA
As of June 1, there will be significant changes to the HAFA program. The updates will allow a homeowner to remain current on their mortgage, qualify for HAFA, and go through a short sale with less of an impact on their credit.
The major changes include:
▪ The deadline for submitting for HAFA eligibility will be extended a full year, from December 31, 2012 to December 31, 2013.
▪ The removal of occupancy requirements: HAFA until now has required homeowners to have lived in the property within the last 12 months. This requirement is being removed.
▪ The $3,000 relocation incentive will be limited to properties occupied by an owner at the time of the short sale.
▪ Mortgage payments will be allowed to exceed 31% of the homeowner’s gross monthly income. The effect of this will be to allow a homeowner to remain current on her mortgage and still qualify, minimizing the overall potential impact to her credit, and certainly shortening the waiting period to purchase in the future.
▪ Junior lienholders may receive up to a maximum of $8,500, up from $6,000 previously (these are incentives to junior lienholders).
▪ There are also new mandates regarding what the lender can state on the borrower's credit report that, reportedly, will lessen the impact on the borrower's credit rating.
We'll post any new information as we receive it. We have more information about HAFA here.
The major changes include:
▪ The deadline for submitting for HAFA eligibility will be extended a full year, from December 31, 2012 to December 31, 2013.
▪ The removal of occupancy requirements: HAFA until now has required homeowners to have lived in the property within the last 12 months. This requirement is being removed.
▪ The $3,000 relocation incentive will be limited to properties occupied by an owner at the time of the short sale.
▪ Mortgage payments will be allowed to exceed 31% of the homeowner’s gross monthly income. The effect of this will be to allow a homeowner to remain current on her mortgage and still qualify, minimizing the overall potential impact to her credit, and certainly shortening the waiting period to purchase in the future.
▪ Junior lienholders may receive up to a maximum of $8,500, up from $6,000 previously (these are incentives to junior lienholders).
▪ There are also new mandates regarding what the lender can state on the borrower's credit report that, reportedly, will lessen the impact on the borrower's credit rating.
We'll post any new information as we receive it. We have more information about HAFA here.
Wednesday, February 8, 2012
Annual Short Sale Statistics Report
Short sales and the sale of bank-owned properties showed steady increases in the Puget Sound area through 2011, according to the Washington Property Solutions Annual Short Sale Statistics Report.
The percentage of single family home sales that were short sales remained fairly consistent from 2010 to 2011. The increase in distressed property sales overall as compared to 2010 is attributed to a steady increase in the number of bank-owned property sales. The report includes historical sales data for both Short Sales and Bank-Owned Properties in King, Pierce, Snohomish and Kitsap counties.
The percentage of single family home sales that were short sales remained fairly consistent from 2010 to 2011. The increase in distressed property sales overall as compared to 2010 is attributed to a steady increase in the number of bank-owned property sales. The report includes historical sales data for both Short Sales and Bank-Owned Properties in King, Pierce, Snohomish and Kitsap counties.
Monday, February 6, 2012
Short Sale War Stories: How A Third-Party Negotiator Can Kill Your Short Sale
Over the past few weeks, we've heard a number of stories from brokers who've had their short sales held hostage by third-party negotiators. Here are a few cautionary tales:
Case #1
The listing agent contracted with a third-party negotiator who typically gets paid out of closing costs (1.5% of the purchase price). However, in this case, the bank was not willing to pay buyer's closing costs. The buyer did not have an additional $7,200 in cash to bring to closing. The listing agent was willing to kick in 1% and requested that their negotiator take 1% instead of 1.5%. The negotiator refused to complete the sale without being paid the full 1.5%.
Case #2
A law firm negotiating a short sale neglected to have the listing agent or seller sign a services contract, leaving it unclear who was responsible for paying their 1% fee. Once the short sale was approved, the firm asked the listing broker to pay the fee of $3,100 and threatened to not allow closing until they were paid.
If you depend on a third-party negotiator for your short sale listings you are to a large degree at the mercy of their process and their timing. One third-party negotiator claims that their fees are paid by the lender "over 50% of the time." If the lender opts not to pay the fee, you may get stuck paying some or all of it.
So what are your options? We believe that short sales are foremost real estate transactions, and they should be handled by real estate brokers. Negotiating the short sale should be a part of the professional services that the broker offers at no additional fee to anyone. When we co-list with broker partners, we take the responsibility of negotiating the short sale. Our co-listing commission is 1% of the sales price. There is no fee to the buyer or buyer’s agent. The best way to avoid being taken hostage by a third-party negotiator is for you to be in control of the sale.
Case #1
The listing agent contracted with a third-party negotiator who typically gets paid out of closing costs (1.5% of the purchase price). However, in this case, the bank was not willing to pay buyer's closing costs. The buyer did not have an additional $7,200 in cash to bring to closing. The listing agent was willing to kick in 1% and requested that their negotiator take 1% instead of 1.5%. The negotiator refused to complete the sale without being paid the full 1.5%.
Case #2
A law firm negotiating a short sale neglected to have the listing agent or seller sign a services contract, leaving it unclear who was responsible for paying their 1% fee. Once the short sale was approved, the firm asked the listing broker to pay the fee of $3,100 and threatened to not allow closing until they were paid.
If you depend on a third-party negotiator for your short sale listings you are to a large degree at the mercy of their process and their timing. One third-party negotiator claims that their fees are paid by the lender "over 50% of the time." If the lender opts not to pay the fee, you may get stuck paying some or all of it.
So what are your options? We believe that short sales are foremost real estate transactions, and they should be handled by real estate brokers. Negotiating the short sale should be a part of the professional services that the broker offers at no additional fee to anyone. When we co-list with broker partners, we take the responsibility of negotiating the short sale. Our co-listing commission is 1% of the sales price. There is no fee to the buyer or buyer’s agent. The best way to avoid being taken hostage by a third-party negotiator is for you to be in control of the sale.
Monday, January 30, 2012
Understanding Form 22SS: The Lender Consent Deadline
Every week we get numerous questions about Form 22SS, the short sale addendum to the Purchase & Sale agreement. One of the most common sources of confusion is in paragraph 2, which outlines the number of days after mutual acceptance that the parties have to secure Lender Consent. What happens if that deadline passes?
If the date for Lender Consent outlined in the purchase and sale agreement expires, the agreement automatically terminates. However, termination of the agreement can be avoided. If the time limit is looming and it doesn't appear Lender Consent will be given in time, the listing broker can prepare an addendum to the P & S agreement to extend the deadline.
The addendum needs to reflect the additional time the lender will need, so it's important to talk to the bank and get a realistic estimate of their timeline. That information can then be used to talk to the selling broker and help them set expectations for their buyer. When there's uncertainty about where the transaction stands, buyers can get frustrated and walk away. If all parties have an accurate picture of the process, the chances of a successful closing are much higher.
If the date for Lender Consent outlined in the purchase and sale agreement expires, the agreement automatically terminates. However, termination of the agreement can be avoided. If the time limit is looming and it doesn't appear Lender Consent will be given in time, the listing broker can prepare an addendum to the P & S agreement to extend the deadline.
The addendum needs to reflect the additional time the lender will need, so it's important to talk to the bank and get a realistic estimate of their timeline. That information can then be used to talk to the selling broker and help them set expectations for their buyer. When there's uncertainty about where the transaction stands, buyers can get frustrated and walk away. If all parties have an accurate picture of the process, the chances of a successful closing are much higher.
Tuesday, January 24, 2012
Top 3 Myths about Short Sales
We hear a lot of misconceptions about short sales. In the interest of myth-busting, here are the ones we hear most often, and the facts behind how short sales really work.
Myth #1: All short sale negotiators charge a fee.
Most third-party negotiators, including attorneys, typically charge a fee of 1-1 1/2% of the sale price. They commonly try to get that fee paid by the lender. If the lender opts not to cover the cost, then who pays? In most cases, the seller doesn’t have the cash, or they'd be paying their mortgage. Usually, the buyer or buyer's agent is asked to pick up the cost.
Broker-affiliated negotiators like us include negotiating the short sale as a part of the professional services offered. There are no additional fees to anyone in the transaction.
Our feeling is: The market is tough enough – why make it harder to sell your listing? Which of these listings do you think will sell first?
"Short sale. Buyer to pay negotiation fee of 1 1/2% of sale price. ” “Short sale. Sale professionally negotiated by Washington Property Solutions with no fee to you or your buyer.”
Myth #2: Short sales are low-end properties.
There are short sales at every price point. Among our current listings are a $2.25 million home and two $1 million properties. Nearly 20 percent of all short sale properties sold in King County in 2010 sold for $500,000 or more. Short sales are projected to represent a significant portion of available inventory in 2012 and moving forward, and will be an important source of income for brokers as the real estate market works its way towards recovery.
Myth #3: You can buy short sales at huge discounts.
Short sale homes do sell for less, but not significantly less than market value. The selling price for short sales is usually 5 to 10 percent less than for non-distressed properties. The lender is looking to recover as much of the value of the home as possible, so they will not accept offers that are significantly under market value. So why do buyers purchase a short sale? In our experience, it's the same reason anyone buys a home- they like it. That 10% discount provides an added incentive, allowing buyers to get more house for their money.
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