Building Homeownership by Brien McMahon
RISMEDIA, March 4, 2011—In my previous two articles, I discussed the role of mortgage insurers (MIs) in relation to short sales and answered some of the key questions my company, Radian Guaranty, receives about this type of sale.
In addition to answering a few other frequently asked questions, in this third installment of my three-part series on short sales, I provide the answer to the question we’re probably asked most: Is there anything I can do to help ensure my short sale goes through?
As every real estate agent knows, you can never guarantee any type of sale, but you can increase the likelihood of short sale success with knowledge of what’s involved.
Short Sale FAQs
-How does Radian determine if the purchase amount is reasonable? Radian relies on the mortgage servicer’s property value, but may obtain its own value if there are questions.
-What seller costs does Radian consider reasonable? Radian would like to see seller costs not exceed 8.5% of the purchase amount. Past due taxes, condo dues, local assessments, approved payment to a junior lien holder, etc. would all be valid exceptions.
-How should the seller’s expectations be set before a short sale listing agreement is executed?
1. The sale is subject to written approval by the mortgage servicer, as well as the seller and mortgage lender’s approval.
2. Approximately how “short” the sale will be based on the estimated total mortgage debt through the sale closing (include anticipated past due amounts), minus the estimated sale proceeds.
3. A short sale is a workout, and the seller owes the entire short amount.
4. They may be required to participate financially in exchange for an approval of the short sale.
5. They must demonstrate that a financial hardship exists.
6. They have the right to negotiate or decline participation if the servicer’s approval terms are not acceptable.
7. A person’s credit rating is a powerful measurement in today’s society, and a short sale is a better outcome than a foreclosure from a credit perspective.
-What can an agent do to increase the likelihood of a successful short sale after a purchase offer has been made?
1. The servicer must comply with various third-party requirements, so it’s important to follow the servicer’s instructions carefully for submitting documentation, and do so in a timely manner.
2. Follow up with the servicer often, but keep in mind they are dealing with unprecedented volumes of requests.
3. Keep a log of all activities related to submitting and finalizing the sale, including dates, results of communications, and names, titles and contact information for everyone you deal with.
4. Retain copies of all documents submitted and received.
5. Upon receiving the servicer’s written approval, review all terms and conditions promptly to ensure they were as negotiated and can be met. Some key terms to review are:
a) The authorized net proceeds figure, since the sale will likely be rejected if the servicer does not receive this amount.
b) If the seller is required to contribute cash at closing.
c) The specified settlement date.
d) If the seller is to net zero, since this means no funds can go to the seller.
e) If a promissory note is involved, to be sure it’s executed and delivered as needed and remains unaltered.
f) If the formal, written approval letter matches any pre-negotiated sale terms. If it does not, promptly outline to the servicer why the terms are not appropriate and provide supporting documentation.
6) Communicate the servicer’s approval terms to participants, but only share necessary information relative to the sale.
I trust this series has provided you with useful insight on short sales, offering knowledge from a unique insider perspective to help you overcome obstacles and create a winning situation for everyone involved.
Brien McMahon is chief franchise officer of Radian Guaranty Inc. More information may be found at www.radian.biz.
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