John Rebchook is a former Rocky Mountain News reporter with more than 30 years of experience in writing and communications... By Oliver E. Frascona
Oliver E. Frascona, a Boulder attorney gives advice to real estate brokers regarding short sales.
The short sale has gone well.
You finally get the first lien holder to agree to pay the second $10,000.00 and accept the resulting bigger short sale.
It looks like this one will close.
Then the second lien holder, who is just a spoiler anyway, says “If we don’t get $15,000.00, we will not release our lien. And in addition, we don’t care if that other $5,000.00 comes from the buyer.”
Now what?
You thought that it all had to be on the HUD-1.
If the first lender sees an additional $5,000.00 payment, they might not sign off on the deal. Don’t worry says the second, it is all OK, go ahead and do it.
Sounds sort of like the devil giving advice, to me.
The second lien holder does not care about the broker or anyone else; they just want to get all the money they can.
Do not listen to the second.
If it is not part of the contract, written, approved by the lenders, and on the HUD-1, you have problems.
You have to go back to the first lender and get approval.
“Well can’t I just put it on the HUD-1 and hope that they don’t notice it?”
No – you can not.
That is an attempt to defraud the first lender.
“What if the first lender will not approve the deal? I mean whatever happens after closing is not my problem, if the buyer wants to pay the second lender money, that is their decision. Right?”
Wrong.
The lender is counting on you to tell them all that is part of this transaction, so that it can make a decision as to how much to accept for their loan in the short-sale.
If there is another $5,000.00 in the deal they have the right to know this.
We are representing to the lender that the contract is what is in the HUD1. There is no way to “slip it in” and hope they do not catch it.
Just wait and see
One of these will come back with a “no release” by the first lender or a letter from an enforcement agency that your attendance is needed in a forum that you do not want to attend.
Do it right.
Use a title company that will not close this kind of deal. If a title company agrees to close this kind of transaction, that raises a red flag and you should seek another title company.
Oliver E. Frascona, Esq. is licensed to practice law in Colorado and is a shareholder in Frascona, Joiner, Goodman and Greenstein, P.C. in Boulder. He can be reached at 303-494-3000 or oliver@frascona.com.
great examples of what not to do. I'm not surprised that the second lien holder wouldn't care how they get paid, as long as they get there $$. It's a dog-eat-dog world right now with short sales and I'm hearing a lot of frustration from all parties.
short sales are never short
And then they want to reward our hard honest work by getting us to cut our listing agreement commission despite Fannie Mae's own directions.
Well I am not liking short sales at all, the news on TV make it soung likes its a slide
3 months and its over, is this misleading to the public its a joke, I have 2 excellent
offers on my listing since the 1st week of July, now they have given this to a different
entity to place on their software, I had to scan all 100 pages and send this off to them
1st package sent to the mortgage company would you beleive got lost, well I sent
this package again, lo and behold now after 4 months they want this info sent to the
other company to have this on their software, meanwhile we may loose these great
buyers, and it will become a forclosure, I'm quite sure the public is not aware of this
and our p President is bailing these banks, if they got off their duff and close these
deals maybe we would not have so many forclosures, a property sown the street from
us was a year on the market (forclosure) and guess what they had a cash, full price offer
as soon as it hit the market, what a joke that was,
L like Steve's review of things,…the best name by which to refer to a short sale is a Long, Long Sale. Been under contract on one for 120 days just to get both banks' approval letters. Now they want the buyer to close in 20 days. Short sale,…by that, I think what they meant was "you drew the short straw, sale"
I have 23 active short sale transactions going and I KNOW what I'm doing but the banks are taking longer and making it harder with each passing day. There really should be SOME way for Realtors to communicate to the "powers that be" (Sheila Bair? Elizabeth Warren? OCC? Fed Reserve Board? SEC? who ya gonna call?) that THIS AIN'T WORKING. Mods aren't working, and short sales now take an average of 9.5 weeks to get approval–and I have MANY that have been in default and scheduled for foreclosure for a year or more. The banks say "We need to check with our investors". Well WHOEVER GUARANTEED A ROI FROM A BUNDLE OF mortgage backed securities?? Are MY returns guaranteed on my investments? My 401K is a joke, but, somehow, the owners of these CDOs and MBSs seem to think they can scam all of America and get blood from stones. It's really discouraging, whether you're a listing agent or working for a buyer looking for a deal. I do agree completely on the HUD-1: tell the truth, the whole truth, and nothing but the truth! It isn't worth losing your license!
Short sales are the way that they are because it works. they want the brokers frustrated and hopeless before they give you your approval. The more frustrated you are the more likly you will be willing to take a reduced commission. the more time it takes the more likly you will be willing to say "something is better than nothing"
the banks aren't going to change the process because the process they have in place is what makes them the most money. As soon as you realize that they are TRYING to jack with you you will realize that you can't take it personal and you can't get mad. its part of the deal you singed up for when you took the listing.
Arguing with the bank is like mud wrestling with a pig. at some point you realize that the pig is enjoying it.
If enough Realtors show some backbone and STOP TAKING WHATEVER THE BANK GIVES THEM, the banks won't have anyone who'll play. The problem is, most Realtors HAVE no backbone and figure it's just WHAT THEY DESERVE. Don't you DESERVE to be treated like the PROFESSIONAL you are?? Show a little courage, people! If I get an unacceptable commission offer, I don't forget who I'm working with. Why do you think some short sale processors say right up front that they won't take a stand alone second from WAMU, the WORST, most disrespectful, most unprofessional negotiators in America? Why can't we band together and send out some (like 1000!) certified letters to some of the CEOs of these banks (who, BTW have taken OUR MONEY as bailouts!) and let them KNOW why we won't bother negotiating with them in the future, and WHY they have abysmal short sale closing rates? Who's going to make a ruckus if WE DON'T? Why isn't NAR fighting tooth and nail for us?
Stop complaining people. At least we have business and are able to survive. Short sales aren't easy, but isn't real estate being easy money in the first place the reason why we are struggling now? I love short sales. I get to help people, the are a challenge, I use my brain, AND MOST IMPORTANTLY, they are guaranteed closings. If you don't want your short sale listings, I'll take them!
What about truth in advertising? Bank with my seller says they would like to see the listing on the market 90 days before taking the deal as advertised -and suggest dropping price slowly. Of course I disclose – but what legs does that have? If I go to buy a car for an advertised price and if I have cash in hand – I expect to buy it for that price.
Meanwhile, my other seller in same neighborhood – same sq.ft, same features has his market value reduced by this one advertised for a price that may not ever happen.
SECTION 3.4 of the Colorado Real Estate Commission Short Sale Addendum states "Lien Holder is not required to agree to a Short Sale".
National Association of Realtors say. "MLSs are given the authority to decide whether or not their participants have to disclose reasonably-known short sales".
Fed has the banks back and may get even more funds to cover the short. Seller circumstance is bad however you look at it and from what I read, may have an equal risk to their credit whether they sell short or are foreclosed. Furthermore, bank may still have recourse for difference (I'm not sure on Colorado Law here) – Buyer may or may not get a deal (little risk other than loss of time)
Who has the Realtor's back if this blows up.
Thank you Oliver. Really good article. If it can’t be on the HUD 1-it can’t be.
Thank you, Oliver. As usual…..your expertise is always helpful.