I am a real estate broker in Florida. Like most people I was forced to start handling some “short sales,” both as a listing broker and as a buyer’s broker. In 2008 when Buyers contacted me looking for a house, their first question was likely to be: “Have you got any short sales we can see?” Today, short sales are the last things anyone wants to see. Every one with which I worked was time consuming, had multiple contracts before one ever closed, and was a potential for legal actions. At one point I was so frustrated I said no more. It looks like a lot of Buyers have had similar experiences and they don’t want to experience anymore frustrations.
Often when I complained among other REALTORs®, people said I just didn’t do enough of them to understand them. So I took the classes and earned the National Association of REALTORs® Short Sale and Foreclosure Resource Certification to add some credibility to my complaints, and learn to see if there were things I could do to streamline the process. And while I did pick up a couple of tricks, the major problems still flow from the philosophical blindness of the major lien holders.
From beginning to end in a short sale, a real estate agent is met with belligerence from Account Executives at lien holders and mortgage processors. Everything takes delays; no body seems to know anything, and the person with whom we are dealing changes every six weeks. After one of my listings was transferred to the fourth AE, I decided I’d do some digging. I preformed an internet search on the last AE’s name. Sure enough, I got a new company (a mortgage brokerage office) and a new phone number. So I called him. Although the previous dozen calls had been somewhat antagonistic with him always reminding me he wasn’t getting his job done while talking to me, the tone of this call was entirely different. It was like I was the mouse who had pulled the thorn from the lion’s foot. Suddenly he senses I called because I cared about him and wanted to know what had happened to him. I got more information from him that day than from any single class I attended.
This former AE had been a mortgage broker for twenty years. With the retail mortgage business going one way, and the mortgage default processing business going the other way, he saw an opportunity for steady income and advancement in a growth industry. He was paid $12/hour, had to be there through probation to qualify for benefits (few made it), got minimal training, and no authority. He had to ask his supervisor to go to the next level for anything, and his supervisor always treated him like an interruption. He was pressured to work lots of overtime. Much of his day was spent getting chewed out by irritated real estate people who just wanted to protect their full commissions and get them faster (which a typical commission check could equal six months of his pay), while helping a deadbeat Buyer screw his company out of several years of his pay. He described the entire corporate environment as toxic.
Do you think he was belligerent?
The real estate people calling in are usually irritated because the have customers looking to them for answers they haven’t been getting (making us look unprofessional to our customers). In a normal real estate offer, the Buyer gives the Seller a deadline on the offer, usually 24 hours or the close of business the next day. In short sales, we give the lien holders a blank calendar.
When I saw the first “Short Sale Addendum” prepared by the Florida Association of REALTORS®, I wondered if they (F.A.R.) had outsourced the drafting of the form to Countrywide. Not only did the form disclose to the Buyer and the Seller that the contract was contingent upon the lien holders’ approval (which was the purpose), but there was no pressure on the banks to make a timely decision (. . . contract is extended until whenever the lien holder approves, assuming it is within the Buyer's lifetime). Further there was a clause that said if the lien holders did finally accept a contract and a better contract came in, the lien holder could accept the second contract.
With that clause in a contract, my Buyers could have a closing date for the purchase of a short sale, sell their house, load up a truck, and walk into closing only to be told someone else was buying that house. They might able to up the bid $10,000 or $20,000 and do to the other Buyer what had been done to them. But the good news was, since they weren't closing that day and now had extra time on their hands, “You’re free to go looking for another house with me!”
As a REALTOR® I accept some of the blame for the mess. We have allowed banks to be bullies. The worst enablers are the REALTORS® who want the big business of getting lots of short sale listings from lien holders and will agree to any of their demands. If REALTORS® bringing offers would simply say the listing REALTOR® has 72 hours to get an approval from both Seller and lien holder, eventually lien holders would have to learn how to meet a deadline. And I will tell them how.
As soon as a property is approved for a short sale it should be listed for sale (either with the REALTOR® the Seller has already chosen or someone else). An appraisal should then be ordered. This step is contrary to present practice. The norm is for the lien holder to wait until there is an offer, then take a week to order a Broker’s Price Opinion (BPO), take another week to get it, let it swirl around in the system waiting to be reviewed by management for a couple of weeks, . . .. My honest belief is if the offer is low, the lien holder does nothing and sits back waiting to see if a better offer comes in. As I write this on November 12, 2010, I am still waiting to hear back from the BPO done on an offer I submitted on September 8, 2010. CITI Bank responded on Dec. 6 saying they needed an offer that would net their investor $X00,000. The listing broker responded saying the HUD-1 they submitted showed a net of close to $20,000 ABOVE their minimum acceptable. Jan. 27, we're still waiting! During this time, the contract has had a "no more offers can be submitted clause, (I'm doing all I can to prevent a nightmare such as described above to my Buyers)" been listed in MLS as contingent, and is now listed as expired. The listing REALTOR® could be sued if they do get a backup offer and show it to the lien holder. They aren't getting a better offer.
It is my core belief the mortgage giants WANT the foreclosure process to be real estate hell. We hear about the thousands of people whose adjustable rate mortgages are resetting at higher rates, forcing them to pay more on houses that are worth less than they owe, so they are choosing to walk away. But we don't hear much about the vast majority of those buyers who keep making those payments, sometimes over 10%, because they don't want to go through foreclosure. And if they talk to a REALTOR® who hates doing foreclosures, we will tell them what a mess it is. And if the mortgage giants are loosing up to 25% on 10% of their investments, but making up to 9% on 40% and 5% on the rest, do the math--they are making money on this whole mess!
This desire not to fix the problem explains why they don't adopt better business principles. Such as, the BPO. The lien holders are trying to pay about $80 to a real estate licensee for a number that they hope is close enough to the value a licensed, professional appraiser would give them for $380. $300 is a lot of money to save, especially when you consider the number of homes in foreclosure. But remember the adage, “You get what you pay for.” REALTORS® have no professional standards a BPO has to meet, no guidelines, no legal requirements, possibly no supervision, probably no continuing education on how to do them, no accountability, nothing. I have heard of a real estate licensee going out to do a BPO on the day he passed his licensing test. The fate of a $500,000 real estate transaction could hang on such an opinion. Further, the BPO will expire shortly, which makes sense only if housing prices are appreciating. Where they a not, if a bank gets an offer anywhere close to a two year old BPO in the file they should take it. Instead, they've got to order a new BPO and add three weeks to the calendar.
An Appraiser costs more, but delivers a better product, much less likely to be tainted by inter office rivalries between real estate brokers, one of whom my have gotten the best of the person writing the BPO in their last meeting. One BPO that is $1,000 low will cost the lien holder the money they “saved” on three appraisals. And a BPO that is high could cost a sale, and wind up costing enough to have covered 100 appraisals. Sometimes a penny saved is a penny earned, and sometimes a penny saved is a dollar spent! Bankers are supposed to know the difference. And when a bad BPO sours a deal, there is often a REALTOR® making sure a customer knows which bank is at fault for being too cheap to embrace the better professional standards. If a real estate licensee files a bad BPO, there is no recourse. If a licensed appraiser files a bad appraisal, there can be consequences.
Another thing lien holders don’t understand is according to typical Multiple Listing Service rules, a short sale contract is between the Buyer and the Seller (the person who bought the house and is in default on their mortgage), and is “contingent” upon approval by all lien holders. Within 24 hours of that contract being approved by the two parties the status of the listing is to be changed from “Active” to “Contingent.” A contingent property is technically still active, can be marketed, can be shown, and back-up offers can be written. But, most REALTORS® know there is a good chance they are wasting their time showing a house that is already under contract. Such houses can go to the bottom of the list of possibilities to be shown. So the odds of the lien holder sitting back and waiting for a better offer on a contingent property are greatly reduced.
My solution: the day a lien holder approves a mortgaged property for short sale, the lien holder orders an appraisal. It comes in and the value of the house is written inside the subject property’s folder. Management should choose a number, a constant pre-approved by their investors, saying we need to net X% of the value of each property. (Fannie Mae will give them that number on a scale showing how much bonus they will give the processor for a contract at 90% of value or 92% of value). Multiply the market value on the appraisal by X% and put that number at the top of the file as “REQUIRED NET = $____”. When an offer comes in, the $12/hr Account Exec looks at the HUD-1 draft and compares the “net to lien holder” on the form to the number on the file. If the offer nets the lien holder enough (and enough for the second lien holder—another topic), the contract is reviewed for completeness (and here I would suggest not only the original AE review the contract for completeness but have a second set of eyes look at it as well). REALTORS® may be required to use the lien holder’s approved contract to make it easier for the AE to check, so minimum training will be required to review a contract and make sure all the right boxes are checked and blanks filled. Tell REALTORS® if their Buyer diverts from the accepted "clean" form in anyway the contract will have to be reviewed at another level by someone who has two more days of training and could take a couple of more days—but clean contracts for the asking price are reviewed in house at the lowest level and accepted or countered in 36 hours.
Every week the lien holder can drop the asking price 1%. If the appraisal says a house is worth $200,000 and they want 95%, price the house at $190,000. If an offer comes in for $175,000, tell that Buyer their offer is about 92% of asking. “If we don’t have a better offer in the next eight weeks, we’ll take it. But if we get a better offer, we’ll take that one. Would you like to wait and see, raise your offer, or withdraw?”
Buyers then know what to expect, when they will get an answer, and will be much more likely to do business with us. Any major bank that builds their reputation on this model could become the “go to bank” of first choice for Buyers looking for a good, fair deal and not looking to make pitiful offers in hopes of getting a steal.
Oh, and the $300 additional cost in ordering an appraisal first thing instead of waiting a month to order a BPO if needed is almost exactly 1/3 of the cost the lien holder incurs by holding that house an additional 30 days (note: 6% interest on $200,000 for 30 days is $1,199). The time (and money) my methodology saves, the levels of reviews it saves, the negotiating with investors it saves, all will be saved money for the lien holder.
But the most important thing will be telling Sellers the screwed up, passive aggressive, lien holder centric model of doing business has been traded in for a stream lined, cards on top of the table, customer service oriented model.
I know the people heading the mortgage default divisions of the major banks are overwhelmed with their problems. But somewhere in these major banks there has got to be an highest level of management that realizes they not only have a loss mitigation problem, but they have an ongoing retail mortgage business as well. And when REALTORs®from coast to coast in this country meet new Buyers and ask one of the first questions we ask before we waste time showing houses to people they can never buy, “Are you pre-qualified for a mortgage yet?” and they answer naming one of the banks that gives us the hardest time getting a short sale approved, we’re saying, “Oh, my God! Let me take you to a neighborhood bank or credit union—someone who understands how to treat a customer.”
Big banks need to understand, for all practical purposes, their actual public relations department is the National Association of REALTORs®. They can work with us to minimize their losses, begin restoring their reputation, and getting this country out of the mess into which the sub-prime debacle threw us. Or, they can continue becoming the most hated institutions in the country. My solution is just good business.
Big banks need to understand, for all practical purposes, their actual public relations department is the National Association of REALTORs®. They can work with us to minimize their losses, begin restoring their reputation, and getting this country out of the mess into which the sub-prime debacle threw us. Or, they can continue becoming the most hated institutions in the country. My solution is just good business.
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