I’m excited and filled with hope about the new short sale rules. I believe these new rules have the potential to change the complexion of our entire real estate marketplace.
Ultimately, if administered properly, it will help many more homeowners avoid foreclosure by holding together transactions buyers have previously abandoned because of excessive delays in response caused by the inferior short sale process of many servicers.
Granted, the timelines have improved dramatically from the beginning of this default debacle and, frankly, the delays are not all the servicers fault. One of the biggest challenges they have faced (besides the massive overload because of the volume of distressed properties, understaffing, etc.), is the age old challenge of missing or incomplete paperwork in the packages turned in by the Realtor community. Believe me, I get that after processing thousands of Real Estate-Owned (REO) offers with constant missing initials, prequalification letters, etc.
Of course, the lost paperwork, constant refaxing, understaffing and poor systems setup to process the sales on the servicer side had something to do with it, too, but when it floods, some of the house get washed away and if you have 600 files stacked up, someone is going to be at the bottom of that pile.
The good news is the servicers recognize their former processing challenges and are staffing up for the next wave and the necessity to be compliant with these new rules.
My hope has been strengthened based on the involvement I’ve seen already with multiple servicers to educate the Realtor community in advance of their new processes and commitment to comply and speed up the short sale process. I’m glad to see it — everyone has certainly had enough time to adjust to the distressed market scenario and, I’m sure, anxious to see it go away.
New Short Sale Rule Highlights
Now, let’s discuss some of the highlights of the new rules instituted by the Federal Housing Finance Agency.
The Federal Housing Finance Agency has instituted new rules effective June 1, 2012, which are designed to speed up the short sale process due to overwhelming homeowner complaints with the current system. These changes are huge and they all benefit the homeowner like never before.
This is the first stage of the rule changes found in the
from the Federal Housing Finance Agency. By the end of the year there will be announcements regarding additional enhancements addressing borrower eligibility and evaluation, documentation, simplification, property valuation, fraud mitigation, payments to subordinate lien holders, and mortgage insurance.
2011 Average Short Sale – 308 Days To Complete
To put this change in perspective, there were 88,303 short sales in the fourth quarter of last year and the average short sale took 308 days to process, according to recent industry statistics.
After June 1, 2012, servicers will be in violation of the requirements if they take longer than 30 days to reply in more than 10 percent of the short sale requests. They will face fines of $1 million for the first offense and up to $5 million for repeated violations.
New Requirements For Servicers
- Servicers (mortgage holders) must review and respond to requests for short sales within 30 calendar days from receipt of a short sale offer and a complete borrower response package.
- Notify borrowers within 30 days if any documents are missing from the request.
- Notify borrowers immediately if a deficiency payment is needed to approve the short sale and provide an estimated amount of the payment.
- Lender must form an internal group to review all short sale requests.
- Provide weekly status updates to the borrower if the short sale offer is still under review after 30 calendar days.
- Make and communicate final decisions to the borrower within 60 calendar days of receipt of the offer and complete borrower response package.
The State Attorney General is directed to conduct quarterly reviews and report any violations of the new mandated requirements.
These new requirements are also incorporated into the government’s Home Affordable Foreclosure Alternative (HAFA) programs. This program allows the homeowner to receive up to $3,000 relocation incentive in addition to any lender incentives. Some lender incentives can be as much as $25,000 depending upon the borrower’s individual lender and circumstances.
These federal government changes should improve the process and give the homeowner a smoother and faster path to full recovery.
URGENT Deadline – Mortgage Debt Relief Act Ends Dec. 2012
One other critical issue worth mentioning here is impending deadline of the Mortgage Debt Relief Act of 2007. This act basically relieves the tax consequences for the homeowner from the short sale deficiency and expires in Dec. 2012.
It is imperative for homeowners contemplating a short sale to understand the additional tax consequences if they wait on their short sale until next year.
Servicers Held Accountable
There is no question the federal government has listened to the homeowner and is going to hold the servicers accountable. I expect servicers to embrace these sweeping changes, not only because of the huge potential fines to be levied, but because of the economic preference of short sales versus foreclosures.
Something about the huge savings in carrying costs, attorney fees, repairs to bring to market, avoidance of vandalism challenges, appliance and copper piping theft, etc., may have a higher appeal than dealing out more foreclosures.
Just call that a hunch.
Homeowner Recovery – All s NOT Lost!
It is significant for the homeowner to note that after the short sale, most lenders will approve the homeowner for a new mortgage in as few as two years (some even sooner, depending on individual circumstances, loan to value criteria, etc.).
Sidenote: I would like to briefly extend a huge thank you to Retired Colonel Leon Ray, who is my HomeStyle Team Short Sale Director for providing his input and research on this article.
How Are You Marketing To Obtain Short Sale Listings?
We have a multi-faceted approach to obtaining short sale listings and utilize cross channels to attempt to contact distressed homeowners. Our goal is not so much on obtaining short sale listings as it is to seek out and educate the homeowners on their options to avoid foreclosure and possibly rescue their home first and foremost.
Our marketing includes community outreach and education, social media, webinars, seminars, e-mail marketing, Internet marketing, free online reports, QR Codes, SMS text, direct mail, door hangers, telemarketing, video, blogging and good old door knocking.
Our RE/MAX Diamond HomeStyle Team has also formed a Home Rescue Team to help educate homeowners on their alternatives to foreclosure including eligibility questionnaires for:
Arizona Foreclosure Prevention Task Force
In addition, one of the most recent activities we are going to be involved in is the Arizona Foreclosure Prevention Task Force. Several of the other top performing Realtors in our area were also called on to participate in this wonderful community outreach project.
Multiple monthly educational events have been taking place with outstanding turnouts from homeowners wanting to explore their options. Now, because of popular demand, a massive amount of outreach events are scheduled throughout the rest of 2012 we’ll be participating in and running break-out educational sessions side by side with the servicers and our peers.
What’s great about these upcoming events is that some of the servicers are going to be participating on-site and could even give immediate approval of the best option available for the homeowner right at the event.
How’s that for exciting!
Majority Of Homeowners Never Explore Their Options
Considering the sad reality that a majority of homeowners go to foreclosure without ever even exploring their other options or opening their mail from the servicers attempting to offer them assistance (even when it includes offers of monetary relocation assistance), it behooves us to be diligent (if not on a quest) as Realtors to get the right information to the homeowners in distress.
Especially considering that many homeowners are being told that walking away from their mortgage and letting the bank foreclose by doing a “Strategic Default” is their best possible option. Unfortunately, it has terrible consequences they need to be aware of.
Short Sale May Be Best Option
A short sale may ultimately be the route to go, but until we’ve fully investigated the other options available to see if this really is the best alternative, we have to do what’s best and right for our potential client first.
Naturally, we want to be there to help accommodate the short sale and we would all prefer to be the Realtor of choice after determining this is the best option. Who better to walk them through the process than ourselves, right? But, we must keep in mind, it is more of a give to receive scenario. In other words, uncover, discover and discard the worst options first before closing for the listing.
The fact is, I’ve taught people for years that true success begins when you genuinely and honestly begin caring about the people on the other side of the desk. If you put your wallet first, you might as well get out of the business – people can see that a mile away.
Thanks for your time! Have a great day and remember to never forget, “You’re worth it!”
About Joe Martin
Joe is a national columnist, advanced REO trainer, marketing / social media marketing expert & Broker/Co-Owner of RE/MAX Diamond servicing the Phoenix Metropolitan area. He leads the Top 100 RE/MAX Team in the World (2009/2011), has sold over 1500 homes since 2008, was inducted into the RE/MAX Lifetime Achievement Hall of Fame & has repeatedly won the coveted Diamond & Chairman’s Level Top Producer Achievement Awards. Joe has served on the Board of Directors for HAREP, is an active member of NAREB, NAHREP & AAREA and carries multiple REO certifications & industry designations, including the highly sought after membership in the National REO Brokers Association and Wall Street Journal’s List of Top 400 Real Estate Professionals. In 2010 he was a speaker/panelist at the default industries renowned Five Star Default conference in Dallas, Texas and also serves as a charter member of the 5-Star Federation of REO Certified Experts (FORCE). Joe loves helping others achieve success, is involved in community charities including Make-A-Wish, Children’s Miracle Network, Room For Joy and the Boys & Girls Clubs of America. He enjoys sharing that “Happiness is a Product of Forgiveness” and helping others realize they are truly “worth it!”. He also loves reading, writing, speaking, training, marketing, boating, walks on the beach, majestic sunsets, listening to the waves roll in and scuba diving.