Download - Short Sales For Real Estate Professionals
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MAXIOM C a l i f o r n i aR e a l t y
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Introduction toShort-Sales for the
Real Estate Professional2009
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
ObjectiveMAXIOM C a l i f o r n i aR e a l t y
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We want discuss:• Our mission to homeowners and the neighborhoods in
which they live
• Background and key statistics on delinquencies and workouts
• Real estate professional’s prospective on current environment
• Retention and Liquidation Workout Options
• Short-Sales
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
Our MissionMAXIOM C a l i f o r n i aR e a l t y
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MAXIOM is dedicated to:• Supporting early intervention efforts to help homeowners
stay in homes they can afford and want to keep
• Avoiding foreclosure when homeownership retention is not possible
• Reducing credit losses while maintaining neighborhood values
• Reducing the percentage of homeowners who go to foreclosure without ever making contact with their servicer
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
Personal CommunicationMAXIOM C a l i f o r n i aR e a l t y
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What percentage of loans are placed into the foreclosure process without any personal contact being made with the borrower?
a. 5%
b. 10%
c. 25%
d. 35%
e. 50%
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
BackgroundMAXIOM C a l i f o r n i aR e a l t y
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• Loan modifications have been the workout of choice for the last several years
• As property values decrease, there will likely be an increase in the number of short-sales which will keep REO inventories down and preserve neighborhoods
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
BackgroundMAXIOM C a l i f o r n i aR e a l t y
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• It’s becoming more difficult to negotiate short-sales due to the frequency and size of junior liens
• Many real estate professionals are new to the short-sale experience
• As short-sales increase, the default servicing industry must re-develop relationships with all parties
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
Key StatisticsMAXIOM C a l i f o r n i aR e a l t y
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Delinquent Loan Inventory• 30-days delinquent at record number• 90-days or greater continue to grow• Foreclosure sales at all time high
Environment• Housing prices/valuation falling in many areas of
the U.S.A.• Housing stock with high inventory• Tight money supply and credit market makes it
harder to obtain financingSource: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
Key StatisticsMAXIOM C a l i f o r n i aR e a l t y
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Data• Completing high number of workouts a year• 75% of Loan Modifications ‘cure’ for good• 70% of late stage repayment plans fail versus
40% of early stage• Servicers report that less than a 50% contact
rate with borrowers that went to foreclosure sale• Roper survey showed the majority of borrowers
do not contact their Servicers, but are willing to talk to a financial counselor
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
Workout OptionsMAXIOM C a l i f o r n i aR e a l t y
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Retention:• Full or partial reinstatement• Short-term or long-term forbearance• Repayment plan• Loan modification• FHA partial claim / MI claim advance
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
Workout OptionsMAXIOM C a l i f o r n i aR e a l t y
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Liquidation:• Full payoff• Make whole preforeclosure sale• Short-sale• Deed-in-Lieu of foreclosure• Delinquent loan assumption
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
What Is A Short-Sale?MAXIOM C a l i f o r n i aR e a l t y
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A short-sale is when the net proceeds from the sale of a property are insufficient to cover the mortgage obligations and closing costs and the seller is unwilling or unable to cover the variance.
Property Value $350,000
Total Amount Due – 1st TD $420,000
Sale Price $340,000 (97% of Value)Brokerage fees & closing costs ($30,600) (9% of Sale Price)Less homeowner paid costs $1,000Payment to $50K – 2nd TD ($3,000)Net Proceeds $307,400 (88% of Value)
Shortage/Loss ($112,600)20% MI Claim (100% of claim) $84,000Shortage/Loss ($28,600)
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
MAXIOM C a l i f o r n i aR e a l t y
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Parties in Typical Real Estate Transaction
Seller
Buyer
Buyer’s LenderAgents
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
MAXIOM C a l i f o r n i aR e a l t y
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Parties In A Short-SaleAgents
Seller
Housing Counselor
JuniorLienholders
LoanServicers
MortgageInvestor
MortgageInsurer
Primary Pool
Buyer
Buyer’sLender
HOA Liens
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
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Servicer reviews short-sale package
Servicer determines if investor and/or the MI
company approval required
Servicer negotiates any participation required from
the borrowerIf required, Investor and/or
MI company each reviewQualified short-sale
approved by all required parties
• Short-sale closes• Seller contributes to minimize the loss based on ability• Seller avoids foreclosure• The investor and the MI company minimizes losses• Real estate professional closes an additional sale• Neighborhood avoids the stigma of foreclosure
Short-Sale Process
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
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Who Benefits From A Short-Sale?
MI Company Neighborhood
Servicer Investor
Homeowner Real Estate Professional
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
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Who Benefits From A Short-Sale?Homeowner• Satisfies the debt for less than the
full amount• Avoids a foreclosure on credit
record• Avoids the pursuit of a deficiency
or a deficiency judgment• May avoid reporting of discharged
debt to the IRS
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
MAXIOM C a l i f o r n i aR e a l t y
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Who Benefits From A Short-Sale?Investor• Potentially reduces losses over the
insured amount• Avoids an REO and the expenses
incurred
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
MAXIOM C a l i f o r n i aR e a l t y
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Who Benefits From A Short-Sale?Real Estate Professional• Enhances relationships with buyers
and sellers• Increases listing inventory• Increases sales activities
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
MAXIOM C a l i f o r n i aR e a l t y
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Who Benefits From A Short-Sale?Servicer• Enhances relationships with Investors• Avoids an REO on portfolio loan• Potential investor incentives for
completed Short-Sales• Avoids expensive servicing costs
incurred on delinquent loans• Enhances goodwill for future business
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
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Who Benefits From A Short-Sale?MI Company• Reduces claim losses• Avoids an REO and the expenses
incurred
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
MAXIOM C a l i f o r n i aR e a l t y
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Who Benefits From A Short-Sale?Neighborhood• Keeps housing values from declining• Allows existing homeowners to keep
refinance efforts• Reduces housing inventory
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
Short-Sale PreparationMAXIOM C a l i f o r n i aR e a l t y
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Pre-listing interview with homeowner/ seller• Does homeowner really want or need to sell?
• Discuss other workout options
• Obtain payoff statement
• Determine all contingencies at time of listing (subject to lender approval, etc.)
• Advise the seller of their financial participation in the sale is a condition
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
Short-Sale PreparationMAXIOM C a l i f o r n i aR e a l t y
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Pre-listing interview with homeowner/ seller• Time is of the essence
• Start with first trust deed
• Communicate with junior lien holder(s) and know their payoff requirements
• What is required by the seller’s servicer (loss mitigation department)
See workout documentation
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
Documents For A Short-SaleMAXIOM C a l i f o r n i aR e a l t y
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General workout documentation• Hardship letter
• Seller financial statement
• Statements – bank, investments, retirement, etc.
• Recent pay stubs or P&L/Tax returns if self-employed
• Estimated Seller Closing Cost / HUD-1
• Complete purchase contract signed by all parties
• Buyer FNMA DO/DU or AUS equivalent approval
• Buyer Proof of Funds
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
Documents For A Short-SaleMAXIOM C a l i f o r n i aR e a l t y
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General workout documentation• Mortgage statements for all mortgages
• Separation/Divorce agreement or court documents
• Comparative Market Analysis with model match homes sold, REO, pre-foreclosures, cancelled, and expired
• HOA & Property Management Information
• Real estate professional visual inspection with repair estimates
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
Short-Sale RequirementsMAXIOM C a l i f o r n i aR e a l t y
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Interior Broker Price Opinion (BPO) with the 90-day “as is” marketing timeframe• Sale is always “as is” condition
• Will accept more recent comparable sales to support current value
Net proceeds required• Percentage of interior BPO value
• Closing costs and brokerage fees
• Includes any payment to junior lien-holder(s)
Seller’s financial participation in the transaction based on ability
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
Short-Sale ObstaclesMAXIOM C a l i f o r n i aR e a l t y
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• Seller’s financial participation in seller’s closing costs
• Have better or recent comparable sales available
• Obtaining buyer loan approval through reputable lenders
• Must be arms length transaction – notarized affidavit if unclear
• Know who the owner (investor) of the loan note
• Present market value offers
• Negotiations with all junior liens holders
• Clear, easy to read documentation
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
Short-Sale ObstaclesMAXIOM C a l i f o r n i aR e a l t y
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• Buyer on the Final Settlement Statement (HUD-1) must be same buyer on short-sale lender approval
• Seller receives no rebate, proceeds, or commission from sale
• Include Power of Attorney when sending HUD-1 to servicer
• HUD-1 must be “Certified True Final”
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
Certified True FinalMAXIOM C a l i f o r n i aR e a l t y
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Who certifies the Final Settlement Statement (HUD-1) as “Certified True Final”?
a. Servicer
b. Closing Agent
c. Real Estate Broker
d. Investor
e. Title Company
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
Short-Sale ObstaclesMAXIOM C a l i f o r n i aR e a l t y
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• Promissory note must be prepared by Freddie Mac
• Executed promissory note must accompany HUD-1
• Do not reduce seller cash contribution for closing cost
• Changes on HUD-1 to purchase price or buyer not able to perform will negate the short-sale
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
ResourcesMAXIOM C a l i f o r n i aR e a l t y
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• Reinforce short-sale as a workout option with servicers
• Continue to educate homeowners to avoid foreclosureRetention optionsLiquidation options
• Real estate professional competency developmentTrainingEducateSeminar / WorkshopsConferencesReference materials
Source: Freddie Mac Copyright © 2009 Maxiom California Realty All Rights Reserved
MAXIOM CaliforniaRealty
Maxiom Agents. Maximum Results.