As an Agent - Make Sure you ID a Short Sale Situation Up-front. Listing Agents Aren't Revealing it. Protect Buyer Clients Who Have a Timeline

Many homes that are for sale in various neighborhoods in the Chicago area, are not occupied anymore - and a number of them are pre-foreclosure or foreclosure properties. Others - will be short sale situations.

Homes that are currently occupied may be listed for a figure where the seller will come up short after paying off the principal balance of their loan(s).

If the seller can't cover the shortfall - it will be a short sale situation - meaning that the lender will have to pick up some of the shortfall.

It is important to note that many agents are not advertising that their listed property will be a short sale in the remarks section of the MLS sheet - because they don't want to dissuade a buyer from writing an offer on the property.

Short sale situations can drag on for quite some time - and many buyers have certain time-lines. Negotiations with the lender about how much of the deficiency the lender will pick up can take time.

If a buyer client wants to get into a home in the next 60 days - it might not happen if they are buying into a short sale situation.

So - it is important that the agent representing the buyer find out as soon as possible from the other side what the seller's equity is (which can sometimes be gleaned from the tax record) at the moment - and if there will be a short sale situation - and if so - how much -- so that the buyer isn't blindsided with delays.

As a rule of thumb - the larger the deficiency - the longer the negotiation can take with the lender.

With any short sale situation - we give the buyer "an out" in the contract - if the seller's short sale negotiations with the lender are not concluded within X days.

Our buyer client can then seek a deal elsewhere.

About Short Sales...

If you are in the market to buy a home, or if you are selling a home - you have no doubt heard the term "Short Sale".

If a seller owes more on the property than what it is worth - a short sale is one option. A seller in this situation needs the lender to accept a "short" loan payoff, or in other words accept less than the full amount due on the loan.

So how does that effect you - the buyer? A short sale require the lender to agree to the reduced pay off. Therefore, when you negotiate on a short sale, you are negotiating with two parties:

1. The seller who owns the property
2. The lender who holds the loan.

You need the approval of both parties to get your offer accepted - so the process can be long and tedious.

It is important to make sure the seller has received preliminary approval from the lender, because if the lender does not agree to the terms you will have no contract.

We question the seller and/or the seller's agent to make sure the process is in place, and that the bank will cooperate. This process requires the seller to submit documentation to the lender demonstrating hardship, along with evidence that the market value is less than the outstanding loan.

It can be a long, drawn out, and ultimately aggravating experience. Often, you are dealing with layers of bureaucracy, and this can slow the process down.

You want to make sure that you have interest rate protection during this process. In a normal transaction, buyers will typically lock in interest rates for 30 to 60 days. That may not be enough time for a short sale, and you want to avoid being 45 or 60 days into the sale only to find out that your rate lock expired, and your interest rate just went up 1/4%.

We usually include in the purchase agreement a time frame for lender approval, with a clause that gives the buyer the right to cancel the transaction if the lender does not approve the sale after a certain period of time. In this way - our buyer client is free to pursue other properties if the lender is dragging their feet.

There can sometimes be issues at closing - if the owner is still living in the home. Often times, sellers in this situation are angry and frustrated, and on occasion can damage the property, remove appliances, fail to maintain the landscaping, leave the property dirty and full of debris, or take other actions that will cost you money.

We protect you with a walk through prior to closing - and if the seller is still there - we would make certain demands (depending on the situation) at the closing table to compensate you.

Since the seller theoretically has no money, any issues at close typically have to be negotiated with the bank.

Lenders like to sell properties "as is" in these situations, as they do not want to get into negotiations over property repairs. This is okay, if you have a good inspection - and know what you are dealing with (or not.) We will cancel the contract for you - if the inspections uncovers issues with the property that you don't want to deal with.

We can certainly request that the bank resolve certain issues. They are under no obligation to do so, but if the request is reasonable and it makes business sense for the bank to agree, they usually will.

Short sales can be fairly straightforward, or very complicated. This depends on the stance of the lender. Some banks are much easier to deal with than others when it comes to short sales.

As always, you should seek out an experienced, professional Exclusive Buyer Agent to help you navigate these waters.

Jumbo Loans Finally May Get Help...

If you are a homeowner trying to sell - and your property is over 500k in value - you were probably hurt by the fact that after the lending crisis started - lender jacked rates for jumbo loans by 1-2 percent or more over existing conforming loans under 417k.

That meant that if someone wanted to purchase your home - it would cost more than normal - meaning that you had to lower your price more than normal - meaning that you
got really hosed by the lending crisis. Hopefully - that will change to some extent - though the proposal only boosts the conforming loan to 625k.

It took too long - but finally - a $150 billion economic stimulus plan being negotiated by the Bush administration and congressional leaders could include a temporary boost in the $417,000 conforming loan limit on mortgages eligible for purchase or guarantee by Fannie Mae and Freddie Mac.

The government-sponsored enterprises, or GSEs, may soon be allowed to back loans up to $625,000 nationwide and $700,000 or more in high-cost areas.

The Bush administration had previously tied any increase to the conforming loan limit to tighter regulatory oversight of Fannie and Freddie, where accounting scandals led both companies to fire top managers and restate several years of earnings.

Congress has been deadlocked on legislation overhauling oversight of Fannie and Freddie for several years. House leaders of both parties have agreed to increase the conforming loan limit to $625,000 for one year, although Senate lawmakers and the Bush administration had not signed off on the idea.

Some Senate Democrats had been pushing for an even larger increase in the conforming loan limit in high-cost areas like California and Florida.

The administration still sees an increase in the conforming loan limit as tied to GSE reform.

Jumbo loans that exceed the conforming loan limit have become more expensive and harder to find since August. Wall Street investors have drastically scaled back purchases of securities that had been a primary source of funding for jumbo, alt-A and subprime loans because of fears about rising defaults and falling home prices.

In states like California and Florida (or in the Chicago area where many homes are over 500k),the increased cost and reduced availability of jumbo loans has been blamed for worsening the housing downturn.

The National Association of Realtors maintains that raising the conforming loan limit to $625,000 would prevent 140,000 to 210,000 foreclosures, bolster home prices by 2 to 3 percentage points, and increase economic activity by $42 billion.

California Gov. Arnold Schwarzenegger this week urged Congress to pass legislation to raise the conforming loan limit to $625,000 in high-cost housing markets, saying about half of all home purchases in the state require mortgages that exceed the current limit.

Fannie and Freddie may report as much as $16 billion in fourth-quarter write-downs tied to the declining value of securities backed by subprime mortgage loans. The problem is more pronounced at Freddie Mac, which could be forced to declare $11 billion in write-downs.

Link to Kiplinger's Personal Finance Article - In a Market Where Negotiation Counts.... Find an Exclusive Buyer Agent

Kiplinger's Personal Finance Article - In a Market Where Negotiation Counts.... Find an Exclusive Buyer Agent

The article states, "In a market in which negotiation counts, you'll do well to hire a buyer's agent to help you identify good prospects and to frame and negotiate your offer (to find an exclusive buyer's agent, go to www.naeba.org). Look for one who is knowledgeable about your area's new-home market -- its dynamics, values, builders and subdivisions."

The only problem with the paragraph is that they should have put the word "exclusive" in front of - buyers agent -- when stating -- "you'll do well to hire a buyer's agent."
As a buyers agent works for a company that lists property for sale and may represent the seller 99% of the time... whereas an exclusive buyer agent and their company never represent the seller.

The article mentions how builders can try to make the buyer use the financing partner of the builder..... Which again - relates to some of my posts below...about lender steering..

A good agent will help you compare the lender's offerings with those of another lender, analyzing the good-faith estimate. Instead of getting extra material things thrown in - see if you can have them NOT give you the material things - and get yourself an added price reduction instead...

The article also give you tips on how to select a good home builder.... All in all - it is one of the better written Real Estate articles I've seen in a long time - meaning - accurate facts.

Joint Venture Agreements Between Brokerages and Wells Fargo

Recently - the founder of Long & Foster, the Washington DC area's largest residential real estate brokerage, urged his thousands of agents to recommend the company's in-house mortgage lender more often - and stop working with outside lenders such as Bank of America.

In an e-mail to all Long & Foster agents and managers, Wesley Foster Jr. chastised his workers for funding mortgages through other lenders - instead of using Long & Foster's affiliate, "Prosperity Mortgage."


The e-mail sparked criticism, with some Long & Foster agents, consumer activists and others raising concerns about whether Long & Foster is trying to profit at the expense of their clients' interests.

Foster said he wrote the memo to make agents understand that each time they use Prosperity, they're helping Long & Foster.

HUD/RESPA rules state it is illegal "if the agents or office managers receive kickbacks or fees for doing nothing more than referring services."

However - this is not the first such joint venture revenue or profit sharing agreement that I have heard of between Wells Fargo and a brokerage - so apparently - such corporate agreements give a loophole - so that such revenue or profit sharing is legal.

RESPA may want to tighten up on their rules a bit...

This is another piece of evidence that many Real Estate companies pressure their home-buying customers to use an in-house lender or lender that is co-located at the company's office.

Stephen Brobeck, executive director of the Consumer Federation of Americas stated: "It will not serve the interests of their customer and may even erode the credibility of their agents."

One Long & Foster agent said that they found the e-mail "troubling" because it implies that agents should strive to make the company more prosperous, even if it means undermining a client's interests.

I noted previously in a blog post - that a large local Real Estate brokerage here in Chicago has penned the same type of joint venture agreement with the same company - Wells Fargo. So - Wells Fargo appears to be penning such agreements with major Real Estate companies across the USA - to help pad the brokerage's bottom line - in exchange for their agents pushing business to Wells Fargo.

Is sending your clients to a specific lender such as Wells Fargo - looking out for their best interests in a fidicuary manner?

A fidicuary means that you are looking out for someone's best interests. If you are looking out for their financial best interests - wouldn't you help them shop for the best loan rates and fees - and not steer them towards a lender because it will make your broker's company more profitable?

The brokerage company's financial interests are being placed ahead of the client's interests. That is not being a true fiduciary. The Wells Fargo loan may or may not be the best for the client. How would you know unless you compared? You wouldn't!

Real estate firms promote these arrangements as one-stop shopping - telling their buyer client "it is convenient" "just use Joe here in our office" (who either pays the office rent or their company has one of these joint venture agreements with the brokerage - which exploits a loophole in existing RESPA rules - to put money in the brokerage's pocket.

I wonder how many brokerages have retaliated against agents who didn't make referrals to the in-house or joint venture lender?

Do agents get an extra year end spiff - which isn't formally tied to the in-house referrals - but still based on the number of in-house referrals? I don't know.... I'm just asking the question...