Transcript Short Sales Title and Escrow

Title & Escrow for Short Sales
Multicultural Marketing Division
Caridad Stuart
Bay Area Multicultural Marketing Manager
Fidelity National Title Group
Today’s Objectives
1.
2.
3.
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5.
Background
The Process
Title & Escrow Issues
Do’s & Don’t
Q&A
Background
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The subprime mortgage crisis is an ongoing financial crisis triggered by a
dramatic rise in mortgage delinquencies and foreclosures in the US, with
major adverse consequences for banks and financial markets around the
globe.
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The crisis became apparent in 2007 and has exposed pervasive weakness
in financial industry regulation and the global financial system.
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When US prices began to decline in 2006-2007, mortgage delinquencies
soared, and securities backed with subprime mortgages, widely held by
financial firms, lost most of their value.
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The result has been a large decline in the capital of many banks and USA
government sponsored enterprises, tightening credit around the world.
Background Continued…
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Foreclosures accelerated in the US in late 2006 and triggered a global
financial crisis through 2007 and 2008.
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Governments bailed out key financial institutions, such as Freddie Mac and
Fannie Mae.
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92% of all adjustable rate mortgages will reset next year
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3.3 million homeowners have adjustable rate mortgages
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Foreclosures in 2007 increased 79% over 2006
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There were 2.2 million foreclosures in 2007
What is a Short Sale?
Why a Short Sale?
A short sale is a sale in which the outstanding obligations
(loans/mortgages) against the real estate are greater than the
amount for which the property can be sold.
A short sale is for the homeowners that truly can’t afford to make
their mortgage payments. Illness, Death of a Spouse, Divorce, Loss
of Job are other reasons for short sales.
For example: A mortgagor has a first Deed of Trust (DT) recorded
against his property in the amount of $250,000 and a second Deed
of Trust for $80,000 BUT the Property Value is $300,000.
THE PROCESS: Escrow is Opened… Now
what?
•
It is customary for a realtor or agent to open a pre-escrow or listing with an Escrow
Officer so that he/she can get the process of a draft HUD-1 statement prepared to
forward to the negotiator at the bank.
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The Escrow Officer will revise the HUD-1 several times to meet the negotiator’s
request to change fees that show on the HUD-1 that may or may not be approved.
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The listing agent will receive several offers all of which are submitted to the bank for
review. The Escrow Officer will draw Closing Statements according to all the
contracts received.
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If the bank chooses to accept an offer submitted by the listing agent, the short sale
process has officially begun. It is imperative that any and all documents forwarded to
the principals are executed and that all requests are promptly adhered to.
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Often times- the preliminary report will request an SI or Statement of Information for
either buyer or seller or both.
The Escrow Process Continued…
)
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Review your preliminary report for HOA (Homeowners Associations Prepare your
seller to have to come up with a check payable to the HOA management company so
that escrow is able to order the HOA docs in a timely manner.
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Now that the buyer is in contract, Escrow will request an update on the preliminary
title report so that it too can be forwarded to the short sale lender.
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Demands on tax defaults, garbage liens, HOA dues, and any miscellaneous bills will
be updated and will be reflected on the HUD-1 statement for short sale lender
approval.
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Real Estate professionals often times do not understand that title companies file their
rates with the Department of Insurance; while the short sale lender may not approve
a certain fee that shows on the Estimated HUD-1, please note that it is a fee that has
been filed and the Escrow Officer must charge it. In some cases, this means that the
seller will have to bring in additional funds to close escrow. Please prepare your
client to understand this. It will be reiterated at the signing, however, a prepared
customer will be a happier customer.
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The Short Sale Approval Letter is the most important document that is forwarded to
Escrow.
The Escrow Process Continued
…
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The Short Sale approval letter must be received in its entirety, including any attached
promissory notes. Remember, a short sale will be null and void if there is a
promissory note attached to the approval that has not been executed by the seller at
the time of signing and forwarded along with short sale payoff funds at close of
escrow.
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Remember why the client is requesting a short sale. If they cannot afford to make
payments on their house, chances of them wanting to make a payment for the
balance owed on the property they are no longer living in are very low.
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Escrow will confirm the legitimacy of the short sale approval letter via phone or email
and will verify the instructions stipulated on the approval. (A sample approval letter is
provided.)
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One of the most common scenarios in a short sale that is an area of contention is
when there is a 1st and a 2nd mortgage on the property. The 1st will usually allow the
2nd to receive $1000 and the rest minus fees, commissions and bills are to go to the
1st.
The Escrow Process Continued…
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The agent to ensure the closing, will propose to the buyer’s agent that the buyer pay
the additional funds requested by the second.
THE PROBLEM:
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Both the 1st and the 2nd mortgage lien holders must be in agreement of how much the
other gets and it must be fully DISCLOSED and APPROVED by the first. Remember
the first lien holder is in 1st position for a reason!
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The Escrow Officer is obligated to notify the 1st lien holder of the outside agreement
and get an approval in writing that the 2nd can receive additional funds. If this is not
approved, it is likely that the short sale will not close if the 2nd chooses to not accept
the $1000 it is being offered by the 1st.
Include more process info here
Short Sale Approval Letter
Important items to note on the Short Sale
Approval Letter
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2.
3.
4.
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“Approved”
Close of Escrow Date (on or before …)
Buyer’ Name (s)
Property Address
Sale Price
Approved Fees
Approved Commissions
Amount due to the 2nd Lien holder if applicable
Promissory Note if applicable or indication that there is NO
Promissory Note attached or a part of the approval.
Where short payoff funds are to be sent and to whom and how
Short Sale Approval Letter
• Copy & Paste Sample of SSAL here!
The Role of the Escrow Officer in a Short Sale
• Include the list I used for my escrow files
given to the agent here… TIPS…
CASE STUDY
#1
• Case study from a recently closed SSA
transaction here
Case Study Continued
DO’S & DON’TS
Communicate:
Disclosure:
Understand:
Documentation:
Read:
Assume:
Assume:
Assume:
Wait:
DO
Always communicate with your client and your Escrow
Officer
Disclose, Disclose, Disclose- that is our company policy!
the Escrow Officer’s fiduciary duty is to the buyer, seller and
new lender
It is important that you provide your Escrow Officer handling
the transaction, any and all documents forwarded to you for
execution by your client in a timely manner. Remember: an
SI can hold up a transaction and even be a deal breaker.
The Preliminary Title Report!
DON’T
that all documents have been reviewed by your client.
that your client understands what he has been given
that your client fully understands the extent of his/her
situation
until the last minute to COMMUNICATE, DISCLOSE,
UNDERSTAND, and provide DOCUMENTATION to your
Escrow Officer.
Thank You !
CARIDAD STUART
BAY AREA MULTICULTURAL MARKETING MANAGER
FIDELITY NATIONAL TITLE GROUP
825 BROADWAY
OAKLAND CA 94606
DIRECT: 510-338-1852
CELL : 925- 818-3169