Guiding You Through the Short Sale Process Step By Step: The real top reasons that short sales are not approved or do not close

Very informative, Ken.  I especially like your #1 item.  That is useful information to give a prospective buyer.

Thank you, Eric.

Ken

Thanks for sharing this information.  I am not experienced with the Short Sale process. I have stayed away from them...  Until now, I haven't done any....but I have one coming up so I am trying to learn as much as I can.

Thanks for the well written information Ken. The biggest problem, in my opinion, is the lack of communication on the top end!

Thank you, Janis.

We do have some publications that can be helpful to you.  We also provide services to agents as well.

See the books and our services at TheLawsonGroup website.

Ken

Ken,

Interesting article.  It brought up a few questions for me though.  What exactly do mean by "submitting a proposal".  I'm currently in the midst of a short sale...contacted the lender prior to contract and spoke with the appropriate party to determine exactly what documents their package would require.  We had multiple offers on the property (none as strong as the one we accepted) and I submitted it, along with all the other docs the lender had requested.  My total package was over 160 pages and as thorough as I knew to make it. 

What has amazed me is that now, nearly 4 months later, we still do not have an approval...though the lender has requested EIGHT estimated Hud1s!!!!!  We've produced it eight times, still with no commitment from the lender...yet each time the lender says "send a Hud1 with closing in 2 weeks".  We have been ready to close for 2 months (since the first "extra" Hud1 was requested nearly 2 months ago).  It's like they enjoy hanging that carrot out for us...then pulling it out of our reach!

A huge part of our inventory problem is that these lenders, if they are going to say no anyway, why don't they do it quickly so that 'BAD INVENTORY" is not jading the rest of the market.  If all they're concerned with is a "bottom line"....then this is not rocket science.  The estimated hud1 is submitted with the original contract....if the numbers work, let's get it closed; if the numbers don't work....THEN TELL US so life can go on!

Ken,

Your post was very helpful.  I have been doing short sales for years and have a spreadsheet that shows me what each type of loan needs to net (FHA, Conventional, or VA).  I did not know the net amount changed the longer the property is on the market - I thought FHA was always 88%.  This is great information!  All you realtors out there - this is why it's so important for you to try to find out what the BPO came in at, as nicely as you can.  They don't want to tell you, so be creative.  The hardship letter was good information to put out there, too.  I don't think most realtors realize you have to even have a hardship. 

Thank you Ken, for your very informative post.  Any advice on getting the loss mitigators to move more quickly when you have done everything right?  I'm on my third offer with First Horizon because the first two gave up.  I submitted the first offer on June 8th, and our file has yet to be reviewd.  Should I chalk this up to your reason #4 - the servicer?  They did the BPO on July 9th, then on July 24th got an email from the loss mitigator, "We are 45 days away from review".  I've never had to wait this long!

Thanks Ken, this information is very helpful! While I did read the other post you mentioned and enjoyed it. I enjoyed your blog as well and it shows that you have a great insight to these processes we have to struggle with. I look forward to looking at your publications.

Here are the reasons in my experiences that short sales fail to close:

1.  Unreasonable expectation of cash from seller to close.

2.  Unreasonable expectation of a large note over many years to be signed by seller.

3.  Unreasonable requests of MI companies of either cash or a note in order to approve and close.

4. Bad BPO values. Inexperienced agents doing these BPOs and many banks unbending desire to stick with that often in the face of a buyer appraisal report.  Makes no sense.

5.  BIGGIE HERE:  Language in the approval letters threatening to pursue the deficiency in the future (especially on first loans).  California is an anti-deficiency state and in a foreclosure these people would have no further liability to worry about, so when given a choice.  Foreclosure and you're done.  Or short sale and you'll possibly be hearing from us or collections for years to come for a loss that may exceed 100-200,000 ?  Umm, many take foreclosure to protect themselves and are advised as such by their attorneys.

Ken,   Very good post.   I have also seen this in some short sales and REO Bank Sales.

"Purchaser acknowledges and agrees that the Property is subject to prior sale or withdrawal from the market by Seller at any time, without notice, and Seller reserves the right to consider and reject any and all offers received for the Property including Purchaser's offer."

Have you seen this? And as an Attorney representing the buyer as your client.  Would you have concerns for this, if not could you explain why this is included?

Hi Ken,  Thank you for a very well reasoned and presented overview of this transaction model.  I hope we will all benefit from it and hope to hear more from you !  Well done !

Judi makes an excellent commentin her last paragraph regarding "bad inventory".  I too feel that severely under market short sale pricing skews market value when comparing apples to apples.  No wonder the lenders will not take some of the offers.  Maybe this is why they are as fed up with us as we are with them.  Of say 100 offers they review perhaps 20 meet the criteria that these two bloggers have on their lists.  I think the real issue here is the old fashioned right hand does not know what the left hand is doing.  There is an overwhelming overload in their systems and most lenders, SMI, etc have minimum wage employees that do not understand, or care to understand,  the real estate business.  Most of the time we are all simply swimming against the tide as it were. 

Ken,

Thank you for the information. I had a listing that had to go into short sale. Unfortunately, it did not work out for the seller and in the end, the home became a foreclosure. Very sad. Fortunately it was not their primary residence and becaue of that, it took a long time to get the bank to approve the short sale at all. They did not see it as a "hardship" considering they only used it as an income producing property.  Although I need to learn more about short sales because of our current market, I personally do not care for them :)

Good luck to all!

Sandy

The hardship letter and an itemized statement of all outstanding debt were once the criterion of a certain lender in a short sale scenario. They also required that the defaulting borrrower provide a letter or authorization which would allow the loss mitigation team to communicate freely with an agent or buyer about any details regarding the account of the seller. The letter of authorization was requested because the lender had the grok to protect the confidentiality of the details of the sellers account during the negotiation. If the seller refused authorization the process was terminated.

Thanks for posting this Ken.  We work both short sales and REO properties and all of them are different - in Georgia, neither foreclosures nor short sales will protect a deficiency in the sale vs loan amount so a seller must file bankruptcy to protect themselves.  Bankruptcies then prolong the foreclosure route.

It is always helpful to see everyone's perspective and gather additional info since the rules seem to change all the time and banks are changing how they handle. 

We appreciate your advice!

The Regan Team

"Come to the Beautiful North Georgia Mountains - where the living is easy"

Ken, great post I especially like #1. Catherine I like that you pointed out #5 I don't think a lot of people are aware that the lender can come after you for the deficiency.

I as well agree with Judi, all rings to be true.  I am representing a buyer who offered more than the asking price, and 2 months into it, lisitng agent reveals that the property was part of a bancruptcy. We have now been waiting for 3 months, and last week , according to the lisitng agent, the lender ordered a BPO.  The property is listed AWC1 on MLS, so there have been no other offers on the property (I am in Arizona and  when a buyers agent sees AWC on the MLS, they move on to another property).  Anyone have this experience with a property that is part of a bancrupty?  In my opinion, the seller should have NEVER listed the property until bancruptcy was cleared, because in effect, the property really was NOT able to be sold???

Please comment, I would love to hear your feedback!

Roxy Perry, REALTOR PLLC

Gunnar, who is the big lender, is it Bank of America?

Ken

Thanks for the post.  It was very informative.  It's too bad the banks aren't more organized with their short sale process.  I just submited a short sale and was a little taken aback when they said they didn't want the bank statements, tax returns, pay stubs.  They talked with me over the phone and filled out a form as they asked me questions about the seller's financials.  They said all I need to submit is a hardship letter, the contract and the authorization form.  I was tempted to send the rest of the stuff in, but was afraid if I did, it would foil the deal.  I did send in the listing agreement and showing activity and price reductions during the listing period.  Ken, should I have sent the other documentation in?  When I faxed what they wanted I just said that I have "supporting documentation".  What's your take on that?

Good post.  I know that short sales and foreclosures are the talk of the town right now and likely to be for a few years to come.  The real truth is that there are almost as many reasons for short sales not working out as there are short sales.  Besides what you've laid out a couple more biggies in the "not working" dept. is:

lenders not understanding the laws of the state.  Many lenders have made loans in other states and don't understand, know, or seem to care, what the law is concerning short sales, foreclosures, judgements, possession, etc that will affect the loan, borrower, and property in question.  They may make demands of the seller (and agent) that don't comply with current state laws and they may make their decision to short or foreclose based on their own state laws as opposed to the laws governing the deal.  It has happened.

Bad BPOs.  This is probably the biggest problem with them.  The majority of BPO's are done by new and/or inexperienced agents.  Hardly a good start to a good value.  Add to that that the price (at least here) has dropped to about $25 a BPO and well...let's just say they get what they paid for.  Of course, the problem is that they're using this value to make a decision on whether to accept or not.  This is probably not in the best interest of the lender, because when they do get it as a REO, the real value has "suddenly" dropped.  However, it's definitely NOT in the best interest of the seller.  I wonder what the legality of a bad BPO would be?

And just to tie the two together.  It is against the RE Commissions rules  for NC agents to actually do BPOs, and get paid for it, by these lenders.  Yet, agents are still doing them and lenders are still requesting them.

Ken,

I respectfully disagree with you on presenting multiple offer(s) to the lender.  If these are just offer(s) not signed by all parties to the transaction (no the lender is not a party to the transaction) there is nothing binding either the buyer or the seller to peform (which could be a huge problem) if the buyer walks before a schedule foreclosure.  If your seller is entering into more than one fully executed contract that have been signed by both buyer and seller you are in clear violation of contract law and you and your seller(s) could find yourself in serious legal trouble.  I know that if I were working as a buyer agent in a Short Sale transaction and my client lost out because your seller(s) entered into a multiple contract situation letting the bank decide which buyer they pick there would be some serious issues raised.  Bottom line is that a Contigency Short Sale contract is still A CONTRACT and both parties are to perform as outlined in the terms set forth in the contract.  Until the lender(s) say no to Short Sale net price you still have a contract and cannot send other contracts or offer(s) to the lender.    

Judi,  A proposal is more than just submitting the documents.  It is a professionally-drafted request to approve the short sale.  It carefully clarifies to the lender (the SMI, not the servicing lender) the reasons that the short sale can be approved, states the elements that prove hardship, enables a see-at-a-glance view of the elements that permit approval, and organizes the documents in an order that meets the needs of the SMIs.

Judi, your frustrations over your case are understandable.  It is not likely the SMI who created that mess, but the servicing lender.  This is common with Countrywide nka Bank of America, but some other servicing lenders behave this way as well.   The SMI only needs one HUD, so your problems are with the servicing lender.  I wrote a blog a short time ago that servicing lenders prefer foreclosure over short sale and they will take advantage of opportunities to tank the case.  It appears that you are caught up in that very situation.  Also possible is a bad negotiator (there are a lot of them) who is behind in his or her work and has toyed with your case to his/her benefit.

Judi, we utilize strategies that greatly reduce the chance of these problem to a minimum, however, we do have from time to time our challenges with these people.  It is difficult to tell you how to deal with these problems, but our very carefully-developed procedures, relationship as mediators, and problem-solving techniques do help us deal with these type issues. 

Thanks for your comments.  I'm sure there are many who can identify with you.

Ken

Ken,

Thanks for a most informative post.  The more I read, the more I learn!

Jayne

Catherine,

Thanks for your comments.  There is certainly reason to feel the way you do about their perceived unreasonableness.  MI carriers are not bound by the same regulations as are the SMIs, however, many of them do use the same minimum threshold analysis.  From their perspective, they have their policies based on what will make them the most money (they may be also benefiting from bailout money), while from your perspective it would appear to be throwing good money away.  Bad BPO's is a big problem to be sure, and we do have protective mechanisms that seem to help our agents with this issue.

The deficiency balance issue is a big issue, so I will write an article about it soon.

Thanks again.

Ken

I have some issues with regards to a hardship. I am currently working on a short sale that was initially listed 5% over fair market value and $3K less than the closest active comp in the same building. There was immediate interest in the property and actually received an offer that was $5K above the last unit sold in the project and actually a mirror image. The Seller had to relocate out of state after months of looking for work within his field and was yet to default on any payments.. least up to this time. When the package was presented by our qualified 3rd party negotiator, a reputable attorney, the response that came back after weeks of waiting was simply... The buyer's credit was too clean (scores over 700), and that he should rent the unit and take another job to meet his obligations. In short, they were saying, commit credit suicide and then and only then will we talk. 

Now with many months passing, he is as they wanted, well behind on the note, taxes and condo fees. And yes we do have another offer, the net that the SMI will see is well under what they could have had if they only only taken the time. Oh by the way, the mortgage insurer, told the attorney, that there was no way they would ever pay out unless the seller was belly up. 

Personally we all found their dealings appalling. And if you must know, we are still waiting for them to get back to us.... while their net and market drops further. Go figure! But I tell you this, if they take the property by foreclosure, they will be looking at additional losses exceeding $15K. 

As for multiple offers: Not only does our Listing agreements permit the listing office to stop further marketing, it also states that we are under no obligation to present other offers. As long as an offer has been accepted and signed by the seller, even if "Subject to Lender approval" we can not have them sign additional offers. There is some question even with regards to accepting another as a back up. Our approach: Get the lender to react which is no different from any other sale! If they throw out a counter offer, then the current buyer is given first opportunity to accept... If they wish to counter, then it is fare to assume that the initial offer is null and void and we are at liberty to submit all other offers for consideration... once again, no different from any other sale. In short, we use the same ground rules with regards to offers and acceptance as I would expect to see in a more typical sale, which would include an REO.  Attempts to submit multiple offers is just wrong, it may also be a serious violation of general laws.

Least that is my two cents worth.

Tim, is that language in the MLS listing, or have they made it a part of a counter-claim?  It is possible that the sellers are pursuing alternatives to foreclosure that, if successful, may cause them to stop the short sale and take back the property without recourse by the buyer.  If I were representing the buyer, I would want to have a discussion with the agent to determine the purpose that is being achieved.  I would likely encourage my clients to seek other property unless the seller were willing to modify or clarify the language.

Ken

Lisa,

You are dealing with a servicing lender who is way behind in processing overwhelming numbers of cases.  Having said that, some loss mitigators (remember, they are low paid processing clerks) are particularly slower than others.  Some of them have a list of 25 cases to get through while others work faster and may be 300 or more cases behind.

Ken

http://activerain.com/blogsview/1121516/short-sale-offers-do-you-handle-them-correctly-or-just-shovel-them-over-to-the-bank-

Gunnar,

That is one of several experimental programs that are being tried out between agreements between Freddie, Treasury and several servicers.  Keep watching.

Ken

Some interesting points.  I do not agree with the multiple offer strategy.  There are some lenders that will start the short sale process over if an additional offer is received.  Another note is to only have the authorized agent deal with the lender.  If the homeowner agrees to attempting a loan modification (which 9 out of 10 times results in no useful change) it immediately cancels any short sale in progress.  I have seen two of these cases where there was a pending close within 1 week, and some outside company convinces the homeowner to attempt a loan mod. 

I have closed almost 3 dozen short sales in the last 24 months and agree that clean paperwork, and an actual hardship is essential.  I have also heard that the major lenders are working on a plan to have approvals within 30 days, but still with the required docs.

One more important note for you attempting the short sale.  The new disclosure laws giving 7 days notice to the borrower will surely prove disasterous, as figures can often times change close to the close.  This will trigger an additional 7 days notice to the borrower, putting your sale in jeopardy of missing your close date.  Very few loans can be closed in 30 days anymore, so you should plan on asking for the 30 day extension right from the beginning.

Brenda and others.  I will blog about the deficiency balance issue shortly, so I will reserve my comments for that.

Ken

Nicki,

Most of the SMIs review everything at once, but some private SMIs have differeing procedures.  However, some servicing lenders have developed practices that are designed to get more of the short sales rejected.  (see my prior blog on that issue). 

Generally, a proposal should be submitted with complete documentation.  It is important for the entire proposal to be transmitted on to the SMI.  If the servicing lender tells you to send in only certain documents, then do it, but do not be surprised when it is rejected.

However, as I commented above, Freddie, Treasury and a number of servicing lenders are experimenting with different programs, so your case may fall into that category.

Ken

Ken:

Can you quote a FannieMae source for the 88%, 86% or 84% net to lender rule you mention?

I assume what you mean by "net" is net  proceeds to the lender after costs of sale, including r.e. commissions.

Is that also net after any payment of the new buyer's costs in, say, a new FHA loan? (I understand the lender usually doesn't want to pay those anyway.)

I am hearing from others on AR that the magic number is just a new sale price that is no more than 10% under the BPO -- a significantly less stringent standard.

Even more clarity on where the SMI's are actually setting the bar would be a great thing.

Sorry, Kevin, I stand by my post.  I have some close friends who are executives with some of these entities and their statements are clear.

Ken

Ken, I also stand by mine and several legal opinions that I have obtained and many State Realtor associations have the same position.  The lender cannot sell your property only approve or deny the Short Sale.  Very easy to understand once you give it some thought.

Kevin

Bart,

Thanks for your two cents worth!  Hardship used to require that the borrowers actually be in default, however, last fall that was changed to default being "imminent".    It is the SMI who will approve or reject the short sale, however, some servicing lenders act very badly and create issues and arguments over the borrowers.  Servicing lenders who, without a company-wide and SMI approved policy who limits broker commissions, requires additional documentation, requires certain borrowers to go through certain hoops, are violating the laws against discrimination.  We stop those lenders from behaving in this way, and if you discover that the servicing lender is doing so, you can stop them too.

Call me if you need specific guidance.

Ken

Thanks Ken, your blog makes a whole lot of sense and is helpful when you work with contacts on the other end. I have listed a short sale with a 'big bank' and once it went from 'modification dept' to servicing the loan, they just wanted the hardship letter, P & S agreement and HUD1, not more than 25 pages, most of them being part of the P & S.  The 2nd cash offer was 73% of the LP, don't know what the BPO is.  I am really interested in doing short sales since we are hearing up in Seattle, 50% of home sales by 2011 will be short sales. Has anybody else heard that?

Roxy,

There is a legitimate use of a combination of bankrutpcy and short sale, however, this may not be what you are experiencing.  A short time ago, I blogged about using a bankruptcy strategy to work a short sale.

Ken

Great information!  I particularly like your point about sending in more than one offer.  In the State of North Carolina, the Real Estate Commission requires that other offers be disclosed to the lender.  It is not a matter of contract, i.e. the seller can refuse to sign it and it still has to be disclosed.  It is a matter of disclosure in that the listing agent has to tell the lender about the existence of the other offers.  Your point that it shows extra effort on the listing agent's part is well taken.

I will send you my book, Create A Short Sale, Your Guide Through the Short Sale Maze, if you will send me yours.  We can both learn something from each other.  Your analysis of what banks will accept is very similar to mine, so I really enjoyed that part of your post.

Thanks again.

I have the most problems when there is a lien on the property, other than the main lien.  In the past I have called and had the owner's call and get nowhere, even when the bank said they would pay them most of the money that was owed to them.  So they would rather, I guess, get nothing when the owner goes to foreclosure.

Extremely informative. If I understand you correctly it appears, in a nutshell, we are fighting an uphill battle because the SMIs want to work against us and not sale the property.

Jim,

The net to lender is after all costs of sale that comes out of the purchase price, including broker commissions, seller concessions, etc.  Some of the SMIs are limiting what they will pay of closing costs, like courier fees, recording fees, etc. 

The 88/86/84 are likely posted on the HUD site in their regulations.  It was also announced in DZ News last fall.  I received the informatio also in emails from my contacts.

Some of the SMIs have minimum threshold percentages ranging from a high of 92% down to 70%.  That 10% under fmv is merely a guess, and not based upon policy.  The minimum threshold analysis is the way it is expressed with most SMIs. 

Jim, be careful to make certain that the servicing lender does not trick you into a higher percentage, which they will appropriate to themselves.  Unless it is a company-wide policy approved by the SMI, it is discriminatory and unenfoceable.  We have in a number of cases bypassed the servicing lender to report this behavior to the SMI and stopped it. 

Ken

Ken, although still controversial, I appreciate the opportunity to read and learn from a post about short sales from another perspective.

I had a feeling there was more to it than just "stupid lender!"

bill fletcher

www.whiteinkstudio.com

Orange County Web Design.

Norma,

Second and other liens can be a problem, however, there are many solutions to issues raised by seconds.  The SMIs have established policies for this, like certain loan products held by Fannie permit 1,000 to $3,000 depending upon the unpaid balance of the second.  Freddie has a policy for most products (but not all) that permit 10% of the unpaid principal balance of the second up to $3,000. 

Generally, if the second exceeds that by more than a nominal amount, the second may release the lean, but it may not be in full satisfaction of the debt.  Some lenders who hold a second will not approve a short sale in many cases merely because they do not like the debtor, and I've been able to get them to admit it.  Remember, in these days of bailouts by our tax dollars, the seconds can make money off of blocking short sales.  The only reason they work the process is because the law requires it.  Some of these rejections by seconds may actually be in violation of the law.

That said, we have a lot of success getting liens released by seconds and subsequent liens.  A fallback provision is utilizing a bankruptcy to pressure for approval and expose any violations of law by seconds (see my prior blog on this as a strategy).

Ken

Thanks for your comments, Norma.

Wow very good and informative.  I wish the banks would tell us more of this stuff up front. 

Ken - Your perspectives are "huge"!  Thanks.  I'm involved in a short sale situation right now and I am going to research the "proposal" idea.  Thanks!

Gene,

The banks are not going to help you because they can make more money through foreclosure, to the detriment of the SMI they are contracted to protect.  I have had a number of negotiators brag to me about how they lie to agents.

Kent,

Our publications describe how to do the proposal in great detail, and the Short Sale Business Manual has a sample.  FYI.

Ken

MULTIPLE OFFERS - Great discussion. Kevin & Ken - You both are actually saying the same thing. Kevin is correct the Lender/3rd party has no right to sell the property and Kevin is further correct that the lender is not a party to the Contract. (The property is just collateral for a debt) However, the Lender DOES hold the crucial decision to forgive the debt and by default is the ONLY one who can give permission to the Seller to "proceed" with "this contract or that one"........Sooooo..

...while it IS true a Seller can not ultimately sell his property to more then one buyer, the Seller CAN enter into multiple contracts with each contract saying THIS contract is SUBJECT to APPROVAL - of 3rd party, of my Aunt Betty, of something! Then Aunt Betty will disapprove of ALL offers EXCEPT that one she does want!

In our typical real estate contracts we do NOT enter into more then one contract because our standard agreements are quid-pro-quo. As long as you do this, I'll do that. In short sales however the Seller can NOT promise (contract) to preform without, unless, and until he receives permission to short. So as long as every contract the Seller enters into clearly discloses the deal is 100% subject to his specific lender approving that specific contract,  and otherwise will become null and void, it is NOT against any law.

(In other words the Seller is NOT actually contracting to sell his property to multiple people, which IS impossible and illegal. He is contracting with multiple people who are willing to let someone else decide WHICH contract shall actually succeed)

Is it a good practice? Ken says yes. I'm not sure I agree with that completely. I would definitely recommend apprising the SMI/Negotiator of all offers but, as previous posts point out, they don't always know which deal is actually the best. I think the Listing Agent needs to step up here and make sure they negotiate the best deal up front, counter AS-IS, counter best net, accept the best qualified, MOST LIKELY to CLOSE deal and have the Seller sign that one! Then send that one along with information that we have back up buyers if necessary.

I, like others, have closed some short sales quickly and have others still waiting. I simply blame it all on the backlog and learning curve and remain professional and optimistic!

Adam

Adam,

You are correct in your assessment of the differences between Kevin's comment and my responses.  I really was not intending to get deep into this issue, so I was mostly leaving it alone.  I also did not want to get into a blog argument.

From the perspective of the SMI, I know both Fannie Mae and Freddie Mac would like to see multiple offers.  Legal, since all offers are subject to third party lienholder approval, and state it clearly, the seller can accept them all because only the holder in due course of the promissory note can approve the sale and they will only approve one of them.

Multiple offers that are clearly delineated in the proposal are actually desired by the SMIs and several have stated it explicitly to me.  They do have their opinions on which they will accept.  It is usually the highest amount, but sometimes they will select a lower amount if the high offer is subject to inspection and the next offer, albeit close in amount, accepts the property "as-is".

Thanks for Jumping in here Adam.

Ken

Great post Ken, however, I have to agree with Kevin with regard to multiple offers. Based on my experience, the submission of multiple offers can be suicide. In fact, I attended a short sale webinar recently that featured Sr VP's from both BofA and Wells Fargo. BofA specifically stated that they do NOT want to see multiple offers, while Wells stated that they would consider them. Different lenders have differing opinions I suppose. Regardless, the submission of multiple offers only serves to further bog down an already overwhelmed system.

In my operation, we always make certain that our offer to the short sale lender falls within that individual lender's loss severity rate and sale to market value ratios. If the offer doesn't fit, we don't submit. There should be no reason to submit another offer. Any subsequent acceptable offers received may be accepted by the seller and are then considered backups. They are only submitted to the lender should the first contract fail for whatever reason.

Beyond that, I would tell you that as a listing agent, being actively and aggressively involved in the BPO process is crucial. The BPO is without a doubt the second most important aspect of the short sale and the SECOND TOP REASON that the short sale fails to close. I consider this issue to fall outside the market value discussion because BPO's often do not reflect fair market value. As the listing agent in a short sale, you must share comps and impart and disclose all that you know that may impact the final outcome of that BPO.

That's my story and I'm sticking to it :-)

Ed

I think all banks are different, I agree with comments in this blog and the other blog. 

Keep asking questions until you get the answers that make sense, if they don't make sense keep going.  Not all rules apply to every bank or every person you talk to at the bank.  

My suggestion is to call an expert that you can trust, they have the systems streamlined. And yes there are people that negotiate for Agents that you can trust.  It's time value of money and fiduciary duty to your client.

Ken,

Regarding #6 (multiple offers) 

How can you explain the shift some lender have made, (CW/BOA, WAMU/CHASE) in that they issue offer specific approvals, and any subsequent offer submission will sometimes "reset" the process, in effect, start over.  How do you handle this with multiple offers?

Thanks for your insight.

Ed, thanks for your comment.  Those instructors from Wells and BofA are great people.  Keep their contact information as they can be a great resource if you run into trouble from their companies.

Yes, it is true that BofA does not want multiple offers.  Both of those companies have mega numbers of loans and multiple offers adds work volume and imaging volume.  They do not want anything they don't have to have, so I do not doubt what they told you.

However, those companies own very few loans themselves, so they are predominantly servicing loans owned by an SMI.  The SMIs want the multiple offers, not the servicers, but they are required to forward them all to the SMI.  Regardless of the wishes of the servicers, multiple offers are desired by the SMIs until such a time as they change their corporate minds.

Ken

Hello Everyone!

Look up HUD form 90051 and the 18 pages attached specifically state the nets as Ken stated and he is correct. This is for all FHA loans. In regard to submitting multiple offers, I suggest calling the lender and ask what their process is, as your representing the seller, your clients best interests.

Hope this helps!

Cindy Keil Realtor, CDPE

Thanks, Cindy.  I recommend against asking the "lender" what their wish is.  Their wish is to foreclose, but they are bound by law and contract to process short sales and forward them to the SMI.  You are working to get past the servicing lender to the SMI.

Ken

Ken,  Thank you for the informative post.  This is a great ongoing discussion which I enjoyed reading.  This shows how much there is to know about an ever growing portion of our industry.  What is the most curious about the discussion are the widely varying views by many well informed people. There may not be any "one right answer" depending on the specific situation and companies involved.

Ken, thank you for taking the time to write this very informative post.  And, thank you for the referral to your website where I will take advantage of the books to learn even more!

Brenda Caruso, ABR, CRS, Realtor

Universal Realty

Henderson, NV

Thank you for lending more of your experience to the ongoing discussion of short sales, reos and such. The more points of view are shared, the better for us all.

However, I recently submitted multiple offers, including HUD1s  (as requested) with each to a short sale company now handling my clients property. I have asked numerous times if they would like a property history, showing our attempts to sell this property for almost a year now, no one seems interested in any of that. Both of the offers are less than $5K than the current asking price. Friday I was informed by the young lady handling the file that I must have my sellers submit only ONE offer at a time, which they will then take up to 3 weeks to give us an answer on. I can only hope that the first one submitted gets the house, as the 2nd buyer will likely have found something else before their offer is even on the table!

So, its as Dean Curtis said on the last comment...there is not "one right answer" indeed!

Joseph,

I almost forgot to respond to you.  Sorry. 

We have not had them "reset" any of our cases when an additional offer has been submitted.  Of course, if a new offer is better, those lenders must pass them along to the SMI.

If the proposal has already been submitted to the SMI and you are awaiting a response, submitting another offer will not cause a reset, as the SMIs rarely behave badly, just slowly.

However, if you submit a subsequent offer after they get the response back, or they pass each other electronically, it does necessarily cause a reset if the new offer is better.

The servicing lenders do not behave as badly for us as I know they do for agents.  This is likely due to our mediators also being lawyers that may cause them to take pause before they act.  Nevertheless, they do try from time to time to lie or misbehave, however we have the ability to know when this is happening and steps to take.

Ken

Jody,

This lender may be violating their servicing contract.  However, as I stated earlier, there are a number of different experimental programs being tested right now between Freddie, Treasury, and several lenders.  It is possible that this is part of one of those programs, however, we routinely submit multiple offers with proposals and have met with no resistance whatsoever.

As programs continue to be tested, there will come about, probably quite soon, a major modification of the process that will spread to all of the SMIs.

Meanwhile, remember that the SMI is the entity to approve the short sale, the servicing lender must pass all offers along to the SMI for approval, and that servicing lenders often misbehave and lie.  They have little respect for the great efforts made by Realtors to help mitigate damages, but the servicers are not losing money, only the SMI.  Servicers generally would rather foreclose.

Ken

I also don't agree with submittting multiple offers.  The seller is the one to pick the best out of the multiples. As a Realtor, the job is then to submit the best and work with that.  If it would make it look better to a bank in some cases to know there were multiple offers and that this one was the best, then disclose that to them, but what short sale paper pusher wants that much paper on their already busy desk? I think that it would confuse them and cause delay.

Ken,

This is a fantastic post. I do not think many agents really realize the many layers the poposed short sale must go through. It is helpful you point out the difference between the SMI and servicing lender.

Great suggestion to write a proposal to submit with the package. I hope this information will help many more get their short sales closed!

Thanks for the kudos but I stand by my post, multiple offers just plain don't work. As an attorney can you explain to me how a seller can accept multiple offers to sell his home and not get into a pickle. What if you have six offers that will net the bank servicer the same and the servicer approves the net, who do you choose to sell the home to?

I just can't understand how a home sold via a short sale can possibly be any different than a normal deal with contingencies. Please tell me how this all works to get these short sales through quicker and a better end result and I will definitely change my stance. As of now I still have not found any compelling arguments.

My post was written from an agents perspective. Your inside information is usefull but I am hesitatnt to believe anyone at a bank or servicing company. Millions of Americans trusted them and look what they got us into. As for not meeting their net, yep that's right that's the bottom line and if you don't meet it, it's on to foreclosure. Thanks again.  

Folks,

Whether you choose to submit multiple offers or not, that is a decision you, your client, and your broker should make.  My point is that, thus far, SMIs like them but servicing lenders do not generally like it.  You can have several purchase contracts that have been accepted by the seller because they are subject to third party lienholder approval and the lienholders will only approve one of them.

We make no issue either way with the agents who work with us.  However, we do see that SMIs generally prefer them and anecdotally believe they increase the likelihood that one of them will be approved.

We do not encourage nor discourage multiple offers contrary to the agents' inclinations.  However this discussion was appropriate for my blog points.

Ken

Noel,

Multiple offers do indeed work.  Sorry, but we experience it very often.

I think I just answered the question of how legally multiple offers can be accepted by the seller.  I am not providing legal advice and if this question is important to you, I would encourage you to consult an attorney who is licensed to practice law in your state.

The legal theory is that the contract is "subject to" third party lienholder approval.  It only becomes binding upon the seller when the lienholder gives that approval.  The lienholder will only approve one of them, so in the end there is only one binding contract that has been performed.

Wow.  Tons of great information in here.  Read the comments people.  You'll learn more.

Thanks for sharing that information with us.  Excellent post and very informative.  Totally appreciate it.

Great post.  I am bookmarking for future reference.

You're welcome.  Thanks for your comments.

Ken

There is not silver bullet for short sale to be approved. 

We use a multiple offer senario and basically submit the offer and keep the addional offers as backup.  But we do not submit several offers at the same time.  We always notify the first buyer's of any changes.  If the lender counters we then contact the first offer and let them know.  Allowing the buyer the first chance to counter offer.  If they choose not to then we move on to the next and keep the ball moving forward. 

As you can tell each of us have varied experiences when it comes to short sales and the more we write about those experiences the better negotiators we become.

Great information Ken.

Ken-- great info, especially about the thresholds #1

Back in May the government announced they were going to streamline the short sale process across the board with the plan coming out by the end of July. Well, that came and went and nothing.  I did hear something now about late fall. 

However, Wachovia is piloting a new short sale program.  The new program goes like this:  Send email (no fax) to Wachovia with purchase contract and HUD-1.  Bank generates BPO.  Within 3-5 DAYS, a decision is made.  Wachovia then emails back the payoff demand with minimum net they will accept.  Wachovia prefers that the homeowner is current and it does not require a hardship.  I learned this info directly from a Wachovia short sale manager in northern California where the program was piloted.  He also mentioned that Wachovia does not file deficiency judgments nor does it require a promissory note.

Barbara, thanks for you comments.

There are several experimental programs that have been approved by Freddie (and other SMIs), Treasury, and the participation of a number of servicing lenders.  That is one of them. 

We just completed a short sale proposal submission with GMAC Mortgage (now part of Ally Bank) that took 5 days from submission to approval.  Another experimental program.

BTW, this one had multiple offers.

Ken

Ken, Thanks for a very insightful article. I just had my first and only short sale approved rather efficiently. The bank asked that we submit only one - the best offer, signed by the seller. However, since we had 10 offers I created a spreadsheet outlining the major terms of each of the other offers. It offered them an 'at-a-glance' look at the competing offers.

By the way, I believe a major reason short sales are not approved or are delayed is due to incomplete packages. Half of the offers submitted by so called Realtors, were an embarrassment to our profession. Hopefully, we will be closing next week. :-)

Lots of great information, not only in the main post, but in the comments as well.

As for multiple offers, there was one comment that addressed an important point that may have been overlooked.  Lenders generally don't send short sale approvals that approve a specific buyer's offer.  Instead, they approve a net payoff amount based on one or more offers that were submitted.  If a seller accepts and submits four offers to the lender for approval and three of those offers are for the same or close to the same net amount, how would you know which one of the three the lender is approving if they only approved that net amount?  The offers are subject to lender approval, but three of the four in this case fit the approval criteria.  Now the seller has to back out of two contracts they signed when no contingencies were rejected.  This would be my primary concern with sending in multiple signed offers.

If I send in multiple offers, I prefer to send them in unsigned.  However, the buyer usually doesn't like this and is a lot more likely to bail.  I generally prefer to send the overall best offer to the lender, then put any additional offers in backup position.  I would disclose to the lender that the backup offers exist and will send them in as well if the lender requests (they usually prefer not to have them submitted).  If a backup offer is higher than the submitted offer, the lender is now aware and may counter back at that higher amount.  If the first buyer doesn't agree to the counteroffer, the backup buyer with the higher offer will become the active buyer, their offer is then sent to the lender, and the chance of it creating additional delays is very low.

I think what makes this all so difficult is Ken's point that the loan servicer often doesn't represent the best interests of the SMI, and the loan servicer (specifically the negotiator) acts as the gatekeeper.

Could another reason short sales fail to close escrow be that the Mortgage Insurance is more than the home is now worth so the banks would rather receive full insurance coverage than take a lesser amount as an offer?

Nice post Ken,

Your post and the post you mention put together are a good guideline for new agents taking on short sale listings to pay attention to. Your knowledge/perspective on the SMI is extremely valuable and rarely (In fact, I've never seen it) addressed on AR. (Of course.. I don't live on AR so there is a good chance that I may be missing them since it's not normal featured material coming across my e-mail notifications.)

I've heard of some certain agents that will go around incompetent servicers and contact the Secondary Market Investors directly with the short sale proposal. Is this possible? If so... how would one go about doing this?

Personally.. if I was a SMI I would be a little upset to say the least on how some of the servicers are handling the short sale requests so this strategy seems ideal.

Case in point... after a rather lengthy process of working with some sellers who had to stop paying their mortgage in December due to a severe cut in pay... we were recently notified that the servicer would accept the short sale approval if the sellers contributed 5% of the loss on the loan or sign a non-interest bearing 10 year Promissory note for 10% of the loss. (Over $170,000 loss on the loan aka $8,000+ cash or $17,000+ on the note.)

Here is the kicker -- the proposed sale in question is the highest sale in the neighborhood. (It's a fantastic deal and one of the best I've seen for a short sale approval.)

Now.. it's come to my attention from talking to other short sale experts in our area that this particular servicer may be paying their Loss Negotiators a bonus on how much they can collect in addition to the sale.... no matter how good the sale is. (They've recently seen the exact same scenarios from the same servicer.)

So... this loss negotiator may be willing to jeopardize a fantastic sale in today's market by holding the sellers hostage on a property they are not paying the mortgage on and foreclosure proceedings have not even been started on yet. In other words... these sellers have at least another 5 months to live for free which they certainly plan on doing if the short sale is not approved. (Of course.. they would like to move on in life.)

Now.. if you were a SMI that invested in this loan... would you be happy to know about this?

(There is absolutely NO WAY I would own stock in this company by the way... and from reading some of your answers.. you probably have a very good idea of who I am talking about.)

Also.. I'm wondering when the Secondary Market Investors and Attorneys are going to get wise and start up some class action lawsuits against the particular Servicers who seem to be clearly in gross negligence?

Maybe then... some of the bad behavior that you clearly acknowlege would come to an end?

(And yes... I clearly document my short sale files with all of the communication / detail efforts including the loss negotiators written statement that the 5% cash payment or 10% promissory note was the servicers policy on approving a short sale - no matter what the sale is or the sellers hardship / financial circumstances.)

??????

Ken, this is another example of an AR post where the ensuing discussion is just as informative as the post. Thanks so much for sharing your insight.

I totally understand what you are saying about multiple offers. The way our brokerage handles it is there is one primary offer and the others are back up offers and it is so stated in the contract. Then it doesn't matter how many you have - for those who question multiple offers. The bank can reject the first offer and go on to the backups, rejecting them until they get to the one they like.

The "How many to submit" is the biggest controversy I see right now involving short sales. Your information is both timely and enlightening. Thanks!

Sharon

David,  The SMI must approve a specific buyer.  There have been occasions when an SMI has asked which buyer we think they should accept, but as neutrals we cannot make that suggestion.  Most of the time the SMI accepts the highest offer, however, occasionally they have opted for an "as-is" offer that was lower than an offer subject to inspection.

The buyer does not have to "back out" of any contracts.  Since the contracts are subject to third party lienholder approval, and the third party lienholder only approves one of them, all of the contracts can be signed.  That is a statement of general contract law, not providing legal advice.  If you have a specific situation in your state, you should seek the advice of an attorney licensed to practice law in your state.

Ken

Linda,

When the mortgage insurance carrier pays off a claim on a defaulted loan, they gain the right to approve/reject a short sale.  If they paid of then entire loan, then they fill the shoes of the SMI and have exclusive authority.

Paul,

Indeed I probably do know who that is.  Paul, if a servicer requires conditions that is not required by the SMI, they can do this only if it is a companywide policy that is consistently applied to all cases, otherwise it is discriminatory and illegal.  There are many lawsuits against this servicer, but they do not care because even when they settle the cases, they will make money overall, so those losses are considered to be acceptal cost-of-business losses they can write off.  There are no class action suits against this company at this time.

We commonly run into this with them, but we have so far been able to get them to behave.

Sharon,

How many?  That's a good question.  We have a current one with 7 offers, but as neutrals, we have to submit them all.  I would recommend that you analyze the offers, and if there are 2 or 3 that are substantially ahead of the rest, you could establish a cut-off.  However, include the all of them in the proposal portion.

I hope that is helpful to you.

Ken

Submitting multiple offers to the short sale lenders only causes delays and more problems. Sorry to be so disagreeable! As a lawyer you may have inside tracks that brokers don't have - so be it! I prefer not to give 25-30% of my commission to another negotiator. My expreience so far shows that these lenders, or servicers will only deal with one offer at a time. If a buyer walks and you get an approval, some lenders like BofA may start the whole show over again. Then again they may give you an approval for the new buyer via email. There are no rules.

Every lender is different, and some are much better than others. And every selling agent is different in how they deal with acceptance of multiple offers. Some view acceptance by the seller of their offer as a legally binding contract, and others accept that they are among many - just like dealing in the REO realm. Local MLS rules in the Bay Area of SF require you to place seller offer accepted short sales in 'Pending Subject Lender Approval' status, or you can be Fined! For the moment i am taking the road of looking at many offers over a period of a week or two, and having the seller only sign the best - and advising all others that they are in backup position. After all, they may drop out in 2 weeks anyway!!! And there is nothing I can do.

Ken,  The comments have been eye opening.  I find it surprising that a Broker might only submit One offer at a time.  I might suspect that the bank might have a problem with this if a "Better Net Offer came in before an offer was accepted, countered" or a bidding deadline came. This adds to my early question with regard to this statement in the banks acceptance of a buyers offer.

"Purchaser acknowledges and agrees that the Property is subject to prior sale or withdrawal from the market by Seller at any time, without notice, and Seller reserves the right to consider and reject any and all offers received for the Property including Purchaser's offer."

Yes, this was one a portion of one paragraph in an ELEVEN (11) Page addendum that states the addendum's terms supersede the contract. 

For the brokers that state they only submit one offer at a time, I wonder what type of disclosure they would have signed by their buying clients.  I would think that brokers only prepare and submit offers, by not submitting (or disclosing) I would assume they might be in violation of there state laws.  Possibly there are disclosures that are used, just not mentioned in the comments here.     

Ken,

That is what I thought since I was advised/taught long ago as the Director of Sales for a Developer to apply the "If you do for one, Do it for All" rule.

I was a little shocked to get that "policy" rule from this loss negotiator in writing and called up some other known short sale specialists in my area to get an idea that this was bogus information. 

Now I'm just debating on how to use it to get a final approval without my distressed sellers being held hostage for money they do not have.

I would really love to know the strategy of supplying the short sale proposals /contacting the secondary market investors directly.

Is this strategy possible to begin with?

John,

We do not take from your broker commissions.  We never have and never will unless specifically requested to do so. 

It is true that our relationship with the lenders is different, so that in itself has helped us avoid many problems.  We do not negotiate; rather, we serve as attorney mediators, neutrals, protecting the important interests of each of the parties, including the agents.

Some local boards will prohibit multiple offers, so you have to abide by your local rules.  Some boards are great, but some boards care nothing for the agents.  One large midwest board has an arbitrator who publicly stated that he did not care about the law, he would rule a certain way on complaints about short sale agents. 

It is true that it is often difficult to help agents understand the legalities of multiple offers.  Trying to explain legal concepts is often an effort in futility.  You can't fix stupid.  Usually, this is caused by arrogance and an attitude refusing to understand and learn.

Good luck John, and thanks for the comments.

I have negotiated well over 200 short sales, and I counsel my client (the seller) to accept any and all offers, since they are subject to third party approval anyway. In those cases where I was lucky enough to receive multiple offers, it always has served me well. In more than one case I had a buyer back out after the home inspection or simply because they all the sudden got "cold feet" and having another offer to fall back on allowed us to proceed without interruption. In all cases it was the lender who chose the first offer they wanted to approve.

Thanks for taking the time to write such a detailed, informative post!

I submitted a short sale and it took the lender 7 months to approve it. By then the home price is even lower than ever and ofcourse.. BUYER walked.

Paul,

I describe the strategy for getting servicing lenders to not discriminate, however, being able to tell they are lying, that they are asserting conditions above what the SMI is asserting, is as much art as science.  I have been working with the lenders off and on for 20 years, so I have an intimate knowledge of how they work, how they lie, and what they lie about.  Knowing the various SMI usual conditions is also invaluable.

About contacting the SMI or MI carrier directly.  If, if you know who the SMI is, that is a start. You may be able to find out if you want to pay for the service at www.mersinc.org.  Even with that service, you may not really obtain the correct entity.  If the loan is an FHA loan, then it used to be Fannie that had it.  Now, it could be either Fannie or Freddie.

Next, you can only contact the SMI if the servicing lender lies to you or in some other way violates the servicing agreement between them and the SMI.  This is sometimes difficult to know if this is taking place, and merely guessing is not sufficient.  I have bypassed the servicing lender several times, but I was able to elicit enough information each time that I knew they were in violation, because I have read several servicing agreements.

If you have the occasion to contact them directly, all it takes is a phone call.  I have my contacts, but anybody can call the SMI to report violations of contract or law.

The primary leverage you have is discrimination of protected classes.  You do not have to identify the specific class against which they are discriminating.  They cannot ask you legally for information about the parties: gender, race, national origin, age, etc., so if you raise the issue that one of the parties is concerned about discrimination in this case, that is sufficient.

I guess I would encourage you to read about it in my book.  I think it would be helpful to you if that is a concern to you.

Best wishes,

Ken

Ken,   What abot Default Insurance?  My understanding (and I certainly may be wrong) is that when Lenders bundle Mortgage/Notes and sell those Noted to Investors, in order to make the "Package" more attractive to investors a Default Insurance is attached to each note.  This is only applicable (payable) if the Borrower goes to Foreclosure.  Once a Short Sale Packet is submitted, the Lender then evalautes whether the "Net" of the Short Sale exceeds the "net" of allowing the Foreclosure and selling the home as an REO.  Now, this equation also accounts for the costs depreciation (in declining markets over approx 3-6 months), clean-up/restoration of the home, Agent Commission, Asset Management costs and Default Insurance paying off.  Sometimes the "net' to the Lender/Investor is more allowing Foreclosure coupled witht he Default Insurance.  I have a copy of the Worksheet used to determine the highest 'net" to the Lender/Investor compared to allowing the home to sell as a Short Sale.  This is one of the main reasons (among the others you've listing, which I agree with) that Lenders decline Short Sales for no logical reason.  Any experience with this?  Have your contacts ever mention is factor?    

Brent,

I really don't know much specifically about Default Insurance.  That said, MI carriers have (generally) abandoned the old REO vs short sale comparison analysis for a similar minimum threshold analysis used currently by most SMIs.  It stands to reason that Default Insurance carriers would do similarly, but I do not know for certainty.

However, you seem to have evidence of at least one default insurance carrier using the comparison approach, so for that carrier, your evidence logically dictates that situation.

When a carrier does utilize that analysis, we have a proposal addendum that specifically addresses the legal and marketing analysis of the property using the comparison approach.  The same would apply for a default insurance carrier.  After all, if there is a default, the carrier steps into the shoes of the SMI as does an MI carrier.

I hope that is helpful.  I'm sorry that I cannot provide you with more specific and detailed information, but I do not have much experience with those entities.

Ken

Wow - after reading this post and a number of the comments, I am more thankful than ever that I'm no longer selling real estate.

At one time I handled the Fannie Mae listings in our community, and that was bad enough. I did have two short sales to deal with during my 19 years selling, and they were difficult. But I think it has become much more difficult now that the loan servicers are flooded with them.

Even though I'm no longer in the trenches with the rest of you, I'm interested in this issue, and others, because I write for real estate agents who are dealing with them. Knowing their challenges helps me do a better job. This is especially true when I'm helping them craft information pieces for buyers and sellers.

It really sounds as if the loan servicers are the ones coming out ahead through this whole mess. They get paid for their services no matter who else gets burned along the way. And the longer they can delay, the more they are paid.

One comment here has me wondering. As I understand it, a seller going through a short sale can negotiate to remove any chance of a deficiency later, but a deficiency is always a possibility when a home goes into foreclosure. They just don't know how much it will be until the house is re-sold.

Do I have that wrong? Or is that a state-to-state issue?

Thanks for an informative post,

Marte Cliff, Copywriter

www.copybymarte.com

Ken,

I'm surprised at you advocating  multiple offers! If I were unsuccessful and found out that the seller had accepted more than one offer we'd be in court! Let the seller and his agent explain their bad faith, and interference with a contract.

It seems to me we debated the merits of damages to the seller if the buyer backs out. Multiple offers has the seller backing out in favior of another buyer!

Bill

Marte, I will blog about deficiency balances soon.

Bill, in the article I wrote about multiple offers.  If you think that they are not legal, that just simply is not the law, unless the local board moves to stop them with rules involving listings.  Some have done that, but most allow it.

As far as the legalities, here is the legal concept.  Now this is legal information, not legal advice.  A purchase contract becomes binding upon the buyer with the acceptance of the contract by the seller and the payment of the earnest money.  Since in short sales, the contract is subject to third party lienholder approval, the contract remains binding on the seller when the third party lienholder provides that approval.  Since they can approve only one, multiple offers can be accepted.  If agents want our firm to accept multiple offers for mediation, we require the agents working with us guide their sellers to require certain language in purchase contracts, one of which is that the buyer understands and agrees that multiple offers may be accepted.  This is all explained in the Buyer Packet provided by our firm.

We do not require multiple offers.  However, I have been informed by some of the SMIs that they prefer multiple offers because they are the best indicators of the agents' best efforts to sell the properties.

Ken

Ken,

I didn't even suggest that multiple offers were illegal. But, if we have a binding contract and you and/or your agent undermined it, we will talk civil damages! I've had this happen in similar contracts, the out come, three brokers and two salesmen lost their license, two permanently. I got a specific preformance judgement in my favor and the seller suited the other 5.

I write fair and enforceable contracts, many have been tested, I've never lost on behalf of a client. Some fools have interfered including at least three attorneys. they lost! Including one who got a five year suspension.

The problem is real estate has lost it's moral compass, I naively still believe it had one. Lawyers too, of course I had a great one as a partner for 7 years and I raised one.

I'm really easy going, but God help anyone who harms my clients or students.

Bill

Ken, can you post the link to your blog in which you explain that banks or servicing companies would rather foreclose than approve a short sale? I find that hard to believe. I have had previously almost 20 years of mortgage banking experience in the loss mitigation area and that concept is totally foreign to me as it doesn not make sense at, it does not serve the investors well because they ALWAYS lose more money with a foreclosure and it is a negative mark for a servicing company to report that they were not able to mitigate a loss and avoid the foreclosure. I understand that servicing companies or even banks servicing loans do not own the majority of loans they service and they have to seek approval from the investors prior to approving short sales. I also understand that for specific pool of loans there may be a contractual "approval" to modify a specific percentage of loans in any given pool and then any future approvals in that pool may a) take a long time or b) be denied due to investors' unwillingness to take additional losses (which they will take more so if the loan goes to foreclosure). There is soooo much more that could be said about short sales and foreclosures from the servicer's side but that may be the subject of a future blog. You do make some good points and I would love to see the link for your previous blog since I was not able to locate it. Thanks

Hi Ken, An information post with great discussions. For many there is so much to learn.

Ken -thank you; I have read your book and found it very informative and helpful. I am a Michigan agent, my wife and I both are working short sales, we have not had problems with multiple offers, it is hard to get one, we do not have the buyers. I appreciate your point of view, thanks again.

Mike Warfel

Hello Ken, thanks for this level of effort on the post. I have to weigh in with those that do not send in multiple offers. We are real etate agents and we can help the seller evaluate the strongest offer with the best conditions....it is what we do. I usually strive to have 1 to 2 back up offers. Otherwise, I agree with your post. I am curious, however. How many short sales have you personally gotten approved and did you handle them yourself? If not how many has your company handled and what was the approval rating. It's always interesting to hear these numbers. I look foward to you next post on the deficiency judgment issues and also the latest on new trends from the banks. Thank you!

Jeanean Gendron

Ken -

Thanks for the detailed analysis!

Especially interested in your take on the SMI attitude.  Even the most well thought out, complete short sale package can be disapproved in this way, by someone the agent or attorney has no ability to contact or appeal to.

And, indeed, few know all of their "rules," or, more accurately "preferences" which, when met, enhance the chances for approval.

Most brokers and attorneys hadn't done a short sale at all until a couple of years ago - it has become a market of necessity - so many are just fumbling their way through.  Even the so-called "experts" - providing the training on how to complete a short sale transaction - include a lot of guess work and supposition.

It's all about combining common sense, with the right amount of salesmanship, I guess!

Thanks for the share!

DEAN & DEAN'S TEAM CHICAGO

Ken,

Incredibly valuable post! Have not done a short sale, but have had many buyers entertain the idea of making an offer on a short sale so I appreciate the information. As I've discussed the option with my buyers, I give them basic information about how a short sale works and I ALWAYS recommend that they use an attorney experienced with short sales, if they want to proceed. I don't want to get off point, but can you give me an idea of what it might cost a buyer to retain an attorney for a short sale? This seems to be that great cost unknown that scares them off.

Thanks so much!

Marcia Wray

Ken: So if the Buyer's agent can't submit an offer to anyone who can actually sell the house, how is the buyer served by not waiting to buy the house from the lender, or the FDIC as an REO?  It seems to me that this whole short sale charade has been an exercise in keeping the under performing assets off the bank balance sheets so they can report "earnings" to justify their TARP infusions, and keep the FDIC sort of solvent through the election.  I expect that as the tsunami of commercial mortgages hits us, the lenders will be much more willing to facilitate short sales, as the size of the commercial loans will endanger not only earnings, but the viability of the banks. This has already started with the Guaranty failure on Friday.  Guaranty was a zombie bank for months.

Bill,

When the contract is written properly, with the wording and disclosures we recommend, there is no threat to license, or civil tort action.

Mario,

Here is the link: http://lawsongroupmediation.com/?p=160. The reasons include removal of REO penalties, bailout monies, and servicing agreements.

Eunice and Mike,

Thanks for your nice comments.

Jeaneane,

We serve as mediators, therefore as neutrals.  We have a specific body of ethics and do not quote statistics.  I usually handle personally the first case(s) for each agent that comes onboard.  We have a group of practicing mediators, most of whom are attorneys.  Thanks for your inquiry.

Dean,

Common sense?  Working short sales is somewhat counter-intuitive.  That is, the correct procedures must be learned and common sense from an agent's perspective is often incorrect.  Thanks, Dean.

Marcia,

We do have a number of Buyer's agents who bring us in to process and mediate cases; not just listing agents.  The cost of employing an attorney to do it?  Most attorneys do not have the streamlined process that we have, so that cost would be many thousands of dollars likely.  Almost all attorneys charge by time, and any retainer is usually for the amount that case is likely to cost in terms of time.  Hourly rates vary by where their reputation stands relative to other attorneys in their jurisdiction. 

Thomas,

You raise a good point.  Sometimes a home as an REO will sell for less than the short sale amount.  Here's why.  The SMI approves a short sale and the analysis of what price to approve is based upon a minimum threshold percentage, net to lender, of the fair market value.  After foreclosure, the REO is sold sometimes by the servicing lender and sometimes by the SMI.  The servicing agreement between them spells out the rights, policies, procedures, etc.  So, in a given location, depending also upon the numbers of REOs and therefore the likelihood of finding a buyer, an REO may be more, or may be less.  Since the penalties have been removed or greatly modified for underperforming and nonperforming assets, the servicing lenders prefer the foreclosure and REO sales.  Indeed in many areas, urban neighborhoods with many REOs are establishing government funded regentrification programs to buy up these REOs.  Thanks for raising the issue.

Ken

Like your point one:

"The most important reason that a short sale is not approved is not meeting the net to lender minimum threshold percentage of the fair market value. Formerly, secondary market investors utilized the short sale versus REO comparison analysis to approve or reject a short sale. However, almost all SMIs have changed over to the minimum threshold analysis. That analysis ignores the amount of the debt and focuses on proof of the current fair market value of the property. For different SMIs and even different products, there is a set minimum threshold percentage of the fair market value that must be received in order for the proposal to be approved. For example, all HUD backed loans with Fannie Mae must meet the net to lender amount that is 88% of the fair market value if the property was listed on the MLS within 30 days of the purchase contract; 86% if the contract is within 60 days of listing, and 84% if the purchase contract was date more than 60 days after the property was listed. Many agents eroneously believe they are still using the old comparison analysis."

This is the most complicated and least understood part by agents, sellers and buyers.

Ken,

Great information.  I especially appreciate the information you provided on the lender minimum threshold. 

Ken,

"When the contract is written properly, with the wording and disclosures we recommend, there is no threat to license, or civil tort action."  Amen! "written properly"

I have no problem with any thing two people agree to. I suspect that most don't agree and that the buyer's agent would have to be incompetent to allow such a clause! I'll probably get some flack from this, but the agents who would allow it probably believe they should be able to submitt multiple buyers!

Could you as an attorney with a fiduciary duty to your client advise him to tie up his life and deposit for several months on a one sided contract? If it's to be an auction then let the agents be truthful about it!

Bill

Ken,

Please explain submitting multiple offers in greater detail.  It is my understanding that an offer cannot be submitted for short-sale approval until there is a ratified contract between buyer and seller.  How can an agent submit multiple offers for approval without potentially selling a property multiple times and being subject to a lawsuit by the potential purchasers?  I could see accepting offers in back-up positions, but those buyers will likely walk away before the lender decides which offer to accept.

Harrison,

Correct, but it is not complicated.  Merely subtract all expenses from the purchase price that the lender is expected to cover to obtain the net to lender amount.  Divide that by amount by the fair market value to obtain the percentage.  Simple.  Thanks for your comment.

Terry,  Thank you.

Bill

There is nothing improper, illegal, unethical, immoral to submit multiple offers unless the local board restricts the MLS listing, which most do not, but some do, so long as there is full disclosure and the proper verbiage is used, which we provide to the agents working with us and is in the Short Sale Business Manual we have available, as well as in the book.

There are many buyers who submit offers that are willing to wait in the hopes of getting the property for a great price, with full understanding of the risks and that there are multiple offers.  Why do they do it?  I have asked several times, and each one has their own reasons.  The agent or attorney can provide advice, but it is the client's decision.  We just make sure they are fully informed.

Ken

Wells Fargo, one of the major lenders, asks that we only submit one offer - highest and best.  Just FYI - I've told them before that I have multiple offers but they only want to see one, even if they are substantially different in terms (some are cash, some have more money down, etc.)

Liane,

I comment previously that the servicing lenders prefer only one offer at a time, but it's not their choice.  The promissory note is owned by the SMI and most of them prerfer multiple offers.  So, what a servicing lender wants - too bad, it is not their choice.

However, Freddie, Treasury, and a number of servicing lenders are experimenting with several different programs, and this could be one of them.

How would you know?  I would know, but it is difficult to hand you my skills.  You could disregard what they say and just submit them anyway because they are required by the SMI to forward all offers they receive, but you take the risk of having them find other reasons to tank your proposal.   Therefore, unless you have reason to believe this is part of a common scheme to protect their own interests and not the SMI's interests, I recommend you do what Wells tells you.  I can take some actions that would not jeopardize the cases I am submitting, but  you may not be able to effectively do it.  So I recommend you take the path of least resistance.

Ken

Cathan:  

Multiple offers, if properly prepared, are certainly legal, IMHO. The language in every short sale purchase agreement should state that the offer is contingent upon the short sale lender's approval. That is the "catch all". 

Again, I do not present multiple offers to the lenders and my short sale success rate is 98%. I have a couple dozen of them under contract at any given time.    

Many factors come into play, but the bottom line single most important aspect of the successful short sale is the net to the lender. If the net falls within the lender's parameters, you can probably get to second base. Otherwise, you are dead in the water.  

I was told at a recent seminar that nationally, a mere 12% of the submitted short sales are being approved. A recent survey of Realtors indicated that 25% are being approved.  I am guessing that somewhere in between lies the true statistic.   

So why so few approvals? Why does the process take so long? Same answer for both questions. Lowball offers. The lenders are inundated with offers that don't stand a chance in the world of ever seeing the light of day. Multiple offers?  They only make a bad situation worse.  

If we submit only reasonable short sale offers to the lenders, we can help streamline the entire short sale process and make a positive contribution toward market recovery.  

Ed

Even if we are submitting great offers- the banks aren't approving them. I see this both on the list side and the buyer side. Representing a buyer recently I recently submitted a full price "Bank Approved Purchase Price" offer on a short sale and 6 weeks later - still no answer from the bank. Oh wait, yes there was. They foreclosed on it. (as someone mentioned left hand not talking to right hand!)

Ken thank you for the great info. And all the time and effort it took to continue  the conversation in these 110 comments.

I did not read every post but I also disagree with the multiple offer situation.  Whoever the lender was that said the prefer it, theya are not one of the big one because if you submit more than one offer to BofA, Wells, Chase, etc, you can count on that one never getting approved. 

What your bank friends tell you and what they actually do are 2 different things

Ed,

Thanks for the clarification.

Well now, I am certainly not going to force anyone to agree. Our firm processes multiple offers with some agents, and only one offer at a time with other agents.

Generally, the SMIs want every offer they can get, but servicing lenders don't.  We have great success with multiple offers, but we also have a system that we find very effective. 

My blog point was that we see multiple offers with more approvals than with single offers.  The difference is that when buyers know the agents are submitting multiple offers, they are more serious about their highest and best, and they walk less often.

So, those of you that have great success finding one buyer who offers the net to lender minimum threshold amount and who will not get tired of waiting, I applaud your success.  You deserve it.

However, we have agents working with us who have increased the offers and staying power of buyers by accepting multiple offers, so I presented this to you all for what it's worth to you.

It is legal, it is ethical, and you can accept multiple offers if you want unless your board restricts it in the MLS or the lender tells you that you must only submit one offer (we don't ask them because we don't care what they want).  The opinion that matters is the SMI, so our proposals are designed for them.

Agree or disagree, it is ok to have your opinion.  I only offered what I see can make a difference. 

Thank you Ken for the very helpful information! I'm starting to get more involved in the short sale situation more so then ever, as your blog gives a lot of useful information. I am going to send about 600 letters to offer my help as a Realtor to the people who get their notice of defaults, so I'm trying to learn as much as possible. For the last 12 months I received about 6 short sales approvals and right now I have the last in my pipeline from Indymac Bank which is a Vacant Land Loan with a German bank as the M.I., with 4 months and no results. Thanks!

Really good information regarding the ratio. I closed a couple of short sales but I was unaware of this. Thank you!

Kaneva and Marcelo,

You're very welcome.

Ken

Thank you Ken, I sincerely appreciate the insight into short sales, via your post I learned why I get no responses sometimes, I did learn a lot today. Your time spent on your blog and following the comments have been invaluable for those of us who are dealing with short sales. It is indeed a gray matter and there are not quick fixes for all of those buyers and sellers dealing with the present market flooded by foreclosures. Out of the 120+ comments so far... I read about 90!

This subject and the understanding of it can mean a better and easier transaction for me and my clients the next time around. As a matter of fact I have several clients writing offers on short sales AND I WILL FORWARD THE ENTIRE BLOG AND COMMENTS TO THEM so they understand the intricacies of this market and what we as Realtors are faced with when writing offers and sending them to the "black hole" in the middle of the universe of short sales and foreclosures. Your contribution to AR is dutifully appreciated.

Antonio

Thank you for your kind comments, Antonio

Ken

Copy Ken, thanks for the clarification. I indeed spoke to an attorney and his sentiments were similar however he did say that if it wasn't disclosed in the contract it may get the seller in a pickle.

Noel,

Hence the need to have good legal disclosures to cover all situations.  That is why we published our Short Sale Business Manual, to make sure agents are covered. That and in our book we describe what needs to be in the MLS listing, and What to make sure is added to purchase contracts.  We try very hard to keep abreast of current lawsuits and make sure we have your back.

Ken

Great info Ken. Thanks!

You're welcome, Bernard.

Ken

Ken,

Thanks for an excellent post.  Your information is authoritative and rich with usable information!

Love hearing the legal perspective and "insider" info on the short sales.  Let me ask you, has your organization tried negotiating any short-refis?  We are doing those here in Las Vegas with limited success.  Would love to talk with you about how your company might help us create stronger presentations to the lenders.  Our Congressional contingent here in Vegas is hoping Short Refis can stabilize our sinking market and asked me to pursue any avenues that achieve this end.  I even spoke with Barney Frank about it.  Do you have any experience with them?

Thanks for the great post and congrats on the feature. You have provided a wealth of information, although I respectfully disagree with submitting several offers to the bank. A contract is a contract between seller and buyer. It is my understanding that it is unlawful for the seller to have more than one contract on their home.

Kendall,

Call me at (208) 360-8689

Folks,

It is ok to disagree with seeking and submitting multiple offers.  There are valid reasons for both sides.  Frankly the agents working with us who do obtain multiple offers are closing more of them.

However, it is not, I repeat NOT unlawful.  The legal reason is that the "subject to third party lienholder approval" language means that the contract is only binding if the lienholder gives their approval, and they can only approve one of the buyers.  Now, the caveat here is that some boards of realtors do not have a coding for accepting multiple offers, so effectively they can prevent it from happening.  Some boards do, most boards do not restrict them.  But, it is not unlawful.

So, it is ok to choose not to do them, and it is ok to submit multiple offers unless you are not allowed in your area.  I included it in my blog because it increases closings.

Let me add this.  There is another way to have sure closings.  That is to be so restrictive in your selection of short sales that you are not taking any risks.  That is ok, too, but I have ethical issues in not assisting sellers who may have a case but you know there is a risk that it might be rejected.

Ken

Ken (& all the other folks that have posted!),

This is GREAT information.  From one who does quite a bit of work with short sales, I can attest to many of your points, as I have PERSONALLY lived them.

You also made a KEY point in your last post about being "choosy" as to listing them.  I agree completely, and will be practicing this concept moving forward!  It is bad enough to work for free on many an occasion, but to take on a likely "loser" of a short sale that can consume several months of your time and energy is borderline insanity!!

Thank yo

Ken (& all the other folks that have posted!),

This is GREAT information.  From one who does quite a bit of work with short sales, I can attest to many of your points, as I have PERSONALLY lived them.

You also made a KEY point in your last post about being "choosy" as to listing them.  I agree completely, and will be practicing this concept moving forward!  It is bad enough to work for free on many an occasion, but to take on a likely "loser" of a short sale that can consume several months of your time and energy is borderline insanity!!

Thank yo

Laura,

Yes, you do need to be choosy enough to not waste precious time on cases that will not likely be approved.  That said, there is a line between the responsibility to your business and an ethical duty to sellers to not steer them away from a short sale if that is their last hope yet you are not certain it meets the minimum threshold or other reasonable factor.

Thanks for your comment.

Bill,

Thank you so very much for your phone call.  I indeed did not make it clear enough what makes the multiple purchase contracts legal.  I did make clear the legal theory behind it, but did not address what makes the contracts themselves legal.

So, folks, multiple contracts will only be legal, if IF IF there is wording in the Other Consideration section of your contract that multipe offers will be accepted.  There must be full written disclosure and the buyer must absolutely understand that disclosure by inserting it into the purchase contract.  This is what I failed to make clear in prior comments.

The question of whether to do so is another matter.  If your local board restricts it through MLS rules, you are bound by your Realtor association to those rules.  However, if not, then we have found that agents that accept multiple contracts close more.  However, you do not have to follow this plan.  But if you do, make certain that you have the properly written disclosure on the purchase contract inserted by the buyer or buyer's agent.

We provide to our agents all of the disclosures necessary including a Buyer Packet that goes to the buyer's agent before they make an offer.  This Buyer Packet explains everything from how it works, to how to calculate a reasonable offer likely to be approved, to the wording and disclosures that their offer must contain.  This makes it legal.  Without the proper disclosures, then you cannot accept multiple offers.

Thanks everyone for your great participation, excellent questions, and your support and appreciation.  It does take a long time to write these, but I have the heart of a teach and enjoy helping to correct some of the misinformation and mistaken beliefs.  This is great fun, and I have actually gotten some new clients out of it as well. 

Don't forget to read the next article I wrote about deficiency balances.  The next article I write will be how to predict when a promissory note will be required for approval of a short sale.

Best wishes,

Ken

I appreciate you sharing your insights, thanks for the helpful post Ken

Thanks for putting it into prospective! I will surely pass this information on.

Hi Ken,

  I'm so appreciative of this post and the many respondents. I will take the advice about the "As-Is" condition.  Even though it's stated in the contract, most buyers of short sales understand that the seller won't be making repairs and the bank isn't likely to either if multiple offers are on the table. If that distinguishes my buyer's offer in the eyes of the SMI, I'm all for it!

Thanks for the nice comments.

Ken

Ken,

Good article.  In my experience with the mortgage companies and banks it is your number one reason that makes short sales fail.  But I ask this question,  why would you not sell the house for a slight loss,

• then foreclose have the house on the market with the millions of other homes
• pay to maintain the home or allow the home to deteriorate
• and finally sell the house much later and for less then you could have with the original short sale?

Thanks for your article, Ken

I feel the same. I have had many short sales closed, mostly because of the preparation and the fact that I make sure we present the bank with fair offers. Once an offer is signed we ask for back up offers, and get them.  Overall - the responses on the lender's side are pretty good.

Enat

Great, Enat, I wish you great success.

Ken

Ken, I'm representing two different buyers who've put in offers on two different short sale properties. One offer was submitted in May and the listing agent told me there were several offers, that the "bank was really slow" and the last buyer remaining would probably most likely get their offer accepted. It has been 4 months and now the lender apparently sold the loan to a "bigger bank" which the listing agent won't disclose. Needless to say - will multiple offers in, the seller hasn't signed any contracts and the listing agent apparently has submitted all our offers to the bank for approval. My questions is: What could be causing the hold up? In May, I prepared my buyers to be patient explaining it may take a few months to get approved, but it's now just dragging and they would just like an agent. Is there anything I can do to help speed things along? The listing agent tends to avoid my calls and touches base with me maybe once a month to tell me nothing has happened using the excuse " the bank must have a lot of cases".

What is a reasonable amount of time that a buyer should expect to wait to hear back an answer?

My 2nd client just put in an offer, the seller accepted, and the lender said they won't look at the offer until we complete attorney review. Then they need 45-60 days to make their decision. What is the reason why they would wait to begin reviewing the offer? The listing agent said they haven't approved an amount  yet either?

Any agents/attorneys/lenders opinions are appreciated!

Thanks!

Great Post.  I appreciate the time that you put into your posts. 

I think it all boils down to communication with the servicer and determining what it is that they want to see, since they are the "gate keeper" to the negotiator or SMI.  While your comments regarding the submission of multiple offers is acknowledged, Realtors in general are NOT lawyers and should NOT modify contractual offer agreements by themselves!!

It is interesting that few, if any, of the AR Short Sale "heavy weights" have found their way to this blog post.  Maybe they are just to successful with their approach and did't want to join the fray.