This set of FAQs is a continuation of a series of Q&As based upon the most current short sale information. The link to Part One can be found here. ~ PCQ
11. Question: What is a HAFA short sale?
Answer: This government program has been around since late 2009, and was touted as one that would “streamline” the short sale process. Initially, it was intended only for borrowers coming out of unsuccessful loan mods. That does not appear to be the case today. It has evolved over time, and appears to have perks other short sale programs don’t have [e.g. a $3,000 relocation assistance payment to the seller/borrower]. However, it is somewhat unclear who qualifies and who doesn’t. Like so many other programs, the Big Bank Servicers seem to rely upon different criteria for who qualifies and who doesn’t – and who gets the relocation assistance and who does not. Furthermore, since this program, like all government programs, is voluntary, banks are not required to participate, even though they are willing to consider a request for a short sale. The government link describing the program is here. Just because a lender/servicer will not agree to do a “HAFA short sale”, does not mean it will not consent to a regular one – and in my opinion, besides the $3,000 relocation assistance, I don’t see much difference between the two in terms of the final result.
12. Question: I have heard of problems in short sales when there the borrower has mortgage insurance. Can you explain?
Answer: I could, but have written so many posts about these uninvited interlopers that I will simply direct you to my rants, here, here, and here.
13. Question: Can I try to do a short sale and deed-in-lieu at the same time?
Answer: My experience has been that you may not, metaphorically speaking, queue up in both lines at the same time. The reason is that the Big Bank Servicers cannot multi-task; they seem to have the institutional equivalent of ADHD. If you want to do a short sale, you have to get in the “Short Sale Line.” If you want to do a deed-in-lieu of foreclosure, there’s another line for that. It’s sort of like going to a movie at the Cineplex; if you wanted to see “Reservoir Dogs,” you’d queue up behind that ticket window, and if you wanted something a little more sedate with less bloodletting, say, “Love Story”, you’d queue behind that window.
Moreover, subject to limited exceptions, most lenders will not permit you to try to do a deed-in-lieu, until you’ve tried and failed to do a short sale. The reason is simple: They don’t want the property any more than you do. They would rather someone, i.e. a short sale buyer, took it off their hands, thus assuming the duty to pay the taxes, insurance and maintenance. Big Banks are in the business of larceny lending, and not in the business of holding real property.
And just to remind its beleaguered borrowers who’s boss, if you move out of the short sale line and into the deed-in-lieu line, the bank will act as if they never heard of you before, making you start from scratch in your new queue, filling out all of the old forms again, writing another hardship letter [as if it will be any different than the first one], and assigning a new bank negotiator.
14. Question: What if the buyer wants me to give them some seller concessions, e.g. payment of closing costs or certain discretionary repairs?
Answer: The answer generally is that since the bank[1] is taking the “financial haircut” by getting less of its loan repaid than was actually due, it will not voluntarily permit you, the seller, to offer up concessions that it will have to absorb out of the gross closing proceeds. There are cases where servicers will permit necessary concessions, since they know that any purchaser would demand them. For example, if a servicer refused to put on a new roof when everyone agrees it is absolutely necessary, and the short sale thereby fails, thus resulting in foreclosure, the bank would still have to pay for a new roof in order to sell the property.
15. Question: What happens if the bank servicing my loan transfers the servicing to another entity while my short sale is in progress?
Answer: Before answering, let me explain what a servicer is and does. In most cases, the servicer is not owner of the loan. The loan was likely sold into the secondary mortgage market shortly after it was made to you. The servicer is responsible for collecting and accounting for payments, monitoring the tax and insurance reserves, and generally being responsible for the handling of the paperwork on behalf of the owner [frequently called the “investor”] of the loan. Recently, many Big Banks, especially B of A, have sold the servicing rights to many of their nonperforming loans they were handling. In some cases, these sales are to large, non-bank servicers, such as Ocwen Financial Corporation. This can throw a monkey-wrench into your short sale approval process, and it’s likely you may have to start over, since one cannot assume that the new servicer has – or can find – all of your old paperwork. However, since the owner of the loan hasn’t changed, the outcome should be essentially the same regardless of who is currently servicing it.
16. Question: Why are some short sales more difficult than others?
Answer: There are several reasons:
- Is there one loan or two on the property?
- If so, are they both owned or serviced by the same entity?
- If so, will the short sale proceeds pay off the first lender entirely?
- Will first lender contribute to the second lender?
- Is mortgage insurance involved?
For a discussion as to the relevance of these issues, go to my post here.
17. Question: Can I short sale my own home without using a Realtor®?
Answer: No. And why would you want to try? Your Realtor® knows what they are doing and you don’t. Besides, it won’t cost you anything, since the listing and selling commission comes out of the gross sale proceeds before the bank gets its money. By definition, the short seller brings no money to closing.
When a seller tries to sell their own home without a real estate agent, the process is called a “FSBO” or “For Sale By Owner.” Banks insist that all short sale properties be listed with a neutral [i.e. unrelated] real estate agent. [I say “neutral” to include almost any financial or personal relationship. If there is a pre-existing relationship between the seller and his or her agent, it should be disclosed to the bank negotiator up front. Putting it into the Sale Agreement itself will go a long way in establishing disclosure. – PCQ]
The reason for insisting upon Realtors® is simple: The banks want to make sure that the property gets as much exposure as possible as quickly as possible, and that means getting it posted on the local multiple listing service [“MLS”]. FSBOs cannot display their property in the MLS.
10. Question: What if the property I want to short sell is currently rented?
Answer: This can be a problem on many levels. First, under Oregon law, landlords may not have access to the property without first giving advance 24-hour notice. [Although the notice doesn’t have to be in writing, other forms of notice, such as a phone call, or even email, can create a risk that receipt may be denied.] This pretty much kills the idea of putting a lockbox on the property for buyer agents to have unlimited access anytime with their clients. And although the landlord and tenant may enter into a written agreement for less than 24-hour notice, it must be supported by separate consideration, i.e. a reduction in rent or other form of compensation, and cannot be included in the original rental agreement; it must be a separate agreement. And if the property is on a fixed term lease, the short sale buyer would have to honor the lease for the remainder of the term. For investor clients, this may be an advantage rather than a drawback. Lastly, month-to-month tenants may not be very willing to fully cooperate, since it could mean they will lose their home to a new purchaser. For these reasons, before listing the property, it may be best to terminate the rental agreement if it is a month-to-month tenancy. In Oregon you may issue a no-cause 30-day written termination notice for a periodic tenancy. If it is a fixed term lease, the landlord’s only option is to see if the tenant will vacate early, perhaps by an offer of free or reduced rent for a short period of time.
[1] Actually, in most cases it isn’t really the bank or servicer who is taking the financial hit – rather, it’s the “investor” i.e. the party who bought the loan shortly after it was made. This could be Fannie Mae, Freddie Mac, or some private label investment trust.
