Short Sale Nitty Gritty

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Brokers and agents learn the tricks to closing short sales and how to avoid the legal pitfalls.

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Short Sale Nitty Gritty

  1. 1. CENTURY LAW GROUP LLP FOR ALL YOUR REAL ESTATE NEEDS * REAL ESTATE TRANSACTIONS * REAL ESTATE LITIGATION * BROKER DEFENSE * BROKER NEGLIGENCE * BUSINESS LITIGATION * SHORT SALES SAN JOSE: (408) 300-0340 | WWW.DREDEFENSE.COM
  2. 2. Short Sale Nitty Gritty: Tricks to Closing Short Sales How to Make Money in the Booming Short Sale Market
  3. 3. <ul><li>Loan Modification History: </li></ul><ul><li>2008 – Economic “doomsday” serves as catalyst for boom of the Loan Modification industry </li></ul><ul><li>8-12% of modifications presented are actually modified </li></ul><ul><li>3. SB 94 and the death of the Advanced Fee (October 2009) </li></ul><ul><li>4. DRE Prosecutions </li></ul>
  4. 4. Foreclosure Prevention Litigation <ul><li>Temporary Restraining Orders </li></ul><ul><ul><li>Power of “bad faith” argument </li></ul></ul><ul><ul><li>Case Studies </li></ul></ul><ul><ul><ul><li>Gilroy case </li></ul></ul></ul><ul><ul><ul><li>Dual agency </li></ul></ul></ul><ul><ul><ul><li>challenge </li></ul></ul></ul>
  5. 5. Short Sales <ul><li>Negotiating down or eliminating recourse </li></ul><ul><li>Lessening tax consequences </li></ul><ul><li>1% gross: HUD-1 </li></ul><ul><li>Using “bad faith” litigation as leverage </li></ul><ul><li>Disclosures that protect the agent/broker </li></ul><ul><li>Safeguard agent commissions </li></ul>
  6. 6. Short Sale Nightmares <ul><li>Non-compliance with HUD-1s </li></ul><ul><li>Failure to disclose recourse </li></ul>
  7. 7. Lawsuits Over Short Sales Dramatic increase in lawsuits over Short Sales! <ul><li>Lawsuits are the result of a variety of different SS scenarios: </li></ul><ul><ul><li>Lender did not absolve/relieve the debt (deficiency) </li></ul></ul><ul><ul><li>Seller received a 1099-S for the deficit </li></ul></ul><ul><ul><li>Broker/Agent gave legal, financial and/or tax advice </li></ul></ul><ul><ul><li>Broker/Agent acted outside scope of their expertise </li></ul></ul><ul><ul><li>Broker/Agent did not explore nor provide loan modification options </li></ul></ul><ul><ul><li>Broker/Agent misguided client on the impact of SS on credit score </li></ul></ul>
  8. 8. Handling the Client Interview <ul><li>Find out homeowner’s hardship </li></ul><ul><li>Determine objectives </li></ul><ul><li>Manage expectations (DON’T sugarcoat) </li></ul><ul><li>Primary Residence? </li></ul><ul><li>Behind on Payments? </li></ul><ul><li>How many loans/liens? </li></ul>
  9. 9. Short Sale Preparation (From Listing Agent) <ul><li>Listing Agreement with Short Sale Addendum </li></ul><ul><li>CMA (comparable market analysis) or BPO </li></ul><ul><li>Estimated HUD: disclose all fees </li></ul><ul><li>Complete Short Sale Packet from Seller </li></ul><ul><li>Complete Purchase Offer Packet (from Buyer’s Agent) </li></ul>
  10. 10. Documents Required from Seller <ul><li>Completed & signed Lender Short Sale packet including 4506-T form </li></ul><ul><li>Signed financial hardship letter </li></ul><ul><li>All financials: Copies of most recent paycheck stubs, bank statements, and other assets </li></ul><ul><li>2009 federal tax return (include all pages & schedules). Signed & executed pg. 2 of the 1040 </li></ul><ul><li>Expenses: Itemize monthly expenses (i.e. utility bills, car payments, insurance, credit cards etc.) </li></ul><ul><li>Copy of mortgage statement with property tax bill & hazard statement </li></ul>
  11. 11. Short Sale Preparation (From Buyer’s Agent) <ul><li>Fully executed purchase agreement with Short Sale Addendum & counter offers </li></ul><ul><li>Signed pre-approval letter from Buyer’s Lender </li></ul><ul><li>Buyer’s proof of funds to close escrow </li></ul>
  12. 12. What Lenders look for: <ul><li>Complete & Accurate Short Sale package </li></ul><ul><ul><li>Treat short sale like regular sales transaction </li></ul></ul><ul><ul><li>DATE all documents </li></ul></ul><ul><li>Net Proceeds (profit) </li></ul><ul><li>Junior liens on property? </li></ul><ul><ul><li>NEVER tell Lender you “don’t know” </li></ul></ul><ul><li>Documents Supporting Market Value </li></ul><ul><ul><li>CMA/BPO </li></ul></ul><ul><ul><li>Appraisal report from Buyer’s Lender </li></ul></ul><ul><li>Buyer (agent) assure close of escrow </li></ul><ul><ul><li>Buyer’s contingency removal </li></ul></ul>
  13. 13. Tips & Tricks of Negotiating Short Sales <ul><li>Highlight the positives of SS file to Lender </li></ul><ul><li>Exceed typical 10% down payment or full cash offer </li></ul><ul><li>No seller concessions or buyer’s assistance </li></ul><ul><li>Buyer waives termite report and repairs </li></ul>
  14. 14. Short Sale Approval Deficiency Judgment Nightmares <ul><li>Mortgage Lender & its investors may pursue a deficiency judgment … </li></ul><ul><li>Lender approves SS, but acceptance is conditional upon receipt of a minimum payment $____ to settle account and release liens … </li></ul><ul><li>SS approval “precludes Lender from pursuing subsequent deficiency …” </li></ul><ul><li>“… the bank will release the lien and charge off the remaining debit as a collectable balance” </li></ul><ul><li>“ Customer will still be responsible for all deficiency balances per the terms of the original loan documents …” </li></ul>
  15. 15. Summary <ul><li>Short sales are now the #1 segment in distressed property  </li></ul><ul><li>Lenders try to force lower agent commissions </li></ul><ul><li>CA short sales can have big tax consequences for distressed homeowner </li></ul><ul><li>DRE issue: Negotiating a short sale borders on the practice of law </li></ul>
  16. 16. CENTURY LAW GROUP LLP FOR ALLYOUR REAL ESTATE NEEDS Visit us at DREdefense.com download our complete Short Sale intake packet Contact: Gabriela Ocampo (310) 642-6900

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