Transcript Document
Short Sales Steve Sanders 951-271-3130 [email protected] Short Sale •How to talk to lenders •The Short Sale Packet •Uses of and How to complete an LPO •How to break into the REO game Foreclosures/NOD/REO REO inventory increasing Abnormally low sales combined with abnormally high inventory Foreclosure At Sale Foreclosure (minimum 115 days-IRS notice 25 days in advance of sale) • Notice of Default filed by Trustee • 90 days to reinstate (bring current), either by borrower or subordinate lien • At the end of 90 days a 21 day, Notice of Trustee Sale • Right to reinstate up to 5 days prior to posted sale date. • Payment in full must be accepted up to time of sale Documentation for NOD NODPA BNA DA AD Agency Requirements Either Agent is bonded as an Equity Purchaser’s Representative or Referral (No agency-BNA) Seller can rescind for 5 days Buyer may not solicit transfer of ownership documents Negative Equity Pair up Discuss what would cause erosion of equity in properties where the home is worth less than the cost of liquidation Report your discussion back to the class 5 minutes Short Sale Loans plus cost of sale is greater than value Value First 2nd Escrow Title Commission Equity off) $450,000 $345,000 $105,000 $ 800 $ 1,250 $ 22,500 - $ 24,550 (write What Does Short Sale Client Need? A quick sale or option Money to move elsewhere Save credit (as much as possible) Someone to guide them through tough waters What Lenders Want Repayment of debt, on time, as scheduled A predictable return on investment MONEY They DON’T want Real Estate Owned (REO) that they have to liquidate to get their money They will do whatever they can to minimize loss while liquidating quickly Good Money After Bad Lender is already taking a loss Lenders won’t pay to fix up Really, like probate, as is, where is! Termite report okay, Section I repairs not Limited requirement for disclosures Short Sale Will you work for free? Short Sale - Owners request, lender’s decision Still will hurt credit, but not a foreclosure Talk to lender about possibility of, forbearance, modification LPO or assumption Short Sale Ask for a short sale packet Don’t argue that they are asking for too much information If you have no lender agreement on commission, just like a box of chocolates, you don’t know what you’re gonna get. Get direct contact information for loss mitigation, asset management or REO. ASK what their policies are. Commission New rules as of 3/09. Lenders cannot cut commissions as long as they are 6% or less. Commission The statement “subject to lender approval” protects no one and will dissuade many from making an offer. Get lender approval of the terms and conditions of the short sale and the amounts to which they will agree. According to the DRE if it isn’t in writing it doesn’t exist. Most lenders will agree verbally but will not provide written confirmation. PAA Process Attempt to get a timeline from the lender for approval of an offer. Put the timeline in private remarks along with “subject to lender approval”. If the lender has agreed to all the necessary terms and conditions, in the private remarks state that the short sale terms have been lender confirmed. Short Sale Packet Hardship letter (SOB STORY) and documentation Borrower’s tax returns Borrower’s Bank statements Borrower’s Current Financial Statement Property tax information from assessor Property profile Bio or resume of realtor Marketing Plan and timeline Accurate CMA including DOM Cost of Sale Estimate Commission (including disclosure of how much is paid to Selling Agent) Staging and repair costs to bring it to market standard (lender won’t care) Estimates of costs for termite inspection (not repair), disclosure packet, escrow, title Liens, Senior or Junior If it isn’t a matter of public record, it doesn’t exist A senior lien is any lien or trust deed that appears on title before other liens (date) A Junior lien is any lien or trust deed that falls behind a senior lien (date) Except: regardless of their position, property tax liens never go away Foreclosure of a senior lien wipes out all subordinate liens (except taxes) Subordinate lenders may reinstate the first to protect their position, then foreclose their subordinate interest The Angry Second Pair up What liens might appear on a preliminary title report? What reasons would a 2nd have for walking away from the deal? Report back to the class 5 minutes Liens, Senior or Junior Watch out for subordinate loans! Lenders losing 100% of their loan, will likely take everyone down with them. 1st $475,000 2nd $ 80,000 Sale Price Taxes 1st Commission Left for 2nd $505,000 $ 5,000 $475,000 $ 25,000 $ 0 Short Sale Don’t cheat on the comps. You will get caught! Create a prelisting packet, just as though you were doing a listing presentation. You have to sell the lender that you know what you are doing. Offer an appraisal if the lender gets tough. Lender may run an appraisal or get a BPO anyway If Lender estimates that they will only be able to recover 80%-90% of value or less, a short sale is likely. Though some companies loan to own, most lenders just want their MONEY! Short Sale Maintain contact with the lender and report progress. The lender has reports to turn in. After an offer or offers have been submitted, call and keep calling. Every other day if necessary and wait on hold. A good transaction may result in referrals and possible REO business Also possible source of BPO (Broker Professional Opinion) income If you get the deal work it hard Unsecured Note Lender may want an unsecured note for the amount of deficiency. Sellers who agree to the note will escape with their credit somewhat in tact. Negotiate this. Notes, if paid, are not a charge off and remove immediate potential for taxation. If the unsecured note is not paid, a charge off will be recorded and credit will be affected for 7 years. Help your seller, get a release of liability from the lender. Deed in Lieu of Foreclosure Helps the lender Sets workable time frames Less (slightly) hit on credit Taxable event? Discuss the deed in lieu only after getting listing Tax Consequences - CAR Capital gain or loss is the difference between the taxpayer’s basis in a capital asset (usually cost, plus improvements, minus depreciation) and the price the property sells for at the foreclosure sale or short sale. Foreclosure wipes out purchase money recourse. Short Sale does not Purchase Price Improvements Basis Short Sale Cap Gains $500,000 $ 20,000 $520,000 $480,000 $0 (-$40,000) Tax Consequences - CAR If the basis is greater than the foreclosure or short sale price, the difference is capital loss. If the basis is less than the foreclosure sales price, the difference is capital gain and is generally taxable. Capital loss on personal use property, such as the taxpayer’s residence, cannot offset other types of income and gives the taxpayer no tax benefit. Excercise Pair up – one partner is the lender the other is the agent with a short sale client with a good sob story Sale price $500,000 1st $400,000 2nd $110,000 Commission $ 30,000 Prepay $ 15,000 Shortage $ 55,000 Agent, sell the lender on working with you to complete a short sale Report back to the class Short Sale The End Steve Sanders 951-271-3130 [email protected]