Today I met with The McClintock Group Palm Beach's most sucessful Short Sale real estate agents to learn more about the short sale process and how and why they are so sucessful in closing almost every transaction. Here's what I've learned from The McClintock Group today.
Whether short sales are a small segment of your business or critical to your survival, you need to know how the process is evolving so that you can beat the high failure rate that continues to plague short-sale offers.
“Lenders have hired more staff, developed more structured escalation policies, and in a few notable cases adopted technology platforms, all intended to improve the quality of their work on short-sale files,” says Joel McClintock “
To the sellers and buyers you serve, being able to masterfully close short sales will make you a hero, a genius, and a saint all rolled into one—a hero for the fearless persistence you show when you hear no (or nothing) from the lender; a genius for being able to understand and explain the changing short-sale guidelines; and a saint for being willing to proceed against the odds.
A Wellington resident found himself on the brink of foreclosure a few years ago after the value of his luxury Home plummeted. He talked with four salespeople before finding Joel McClintock, “Joel took the time to explain the whole process,” writes the Wellington home owner. “He was the only one who said the sale might not go through. He was very up-front about expectations.”
Three months later, the home owner had sold his luxury home in a short sale. “I avoided foreclosure, and my credit looks great,” he writes. He has since bought another home.
A part time Boynton Beach family was on the other side of a short sale. They live in the United States just six months of each year. For several years, they rented from a friend. Another salesperson offered nothing but discouragement. “She kept saying, ‘Don’t buy a short sale. You have to negotiate with the bank, it’s a long wait, and you won’t get it because 30 percent of them don’t go through,’ ” writes the family. When they found a short sale listed by Joel McClintock, we fired the other salesperson. The prospect of dual agency didn’t alarm him: “I’m a shrewd businessman.” he writes.
Three times, the family threatened to pull the plug rather than bring more money to the transaction. As a result, “I found out the bottom-of-the-barrel price the bank would take,” But that price was still higher than the family was willing to pay, so Joel McClitock convinced the seller to put $3,000 into the deal. “It was an emotional roller coaster, but it was pretty amazing because we got the seller to kick money into the pot, we got the bank to drop its price, and he got me to raise my maximum amount,” they write. “The other salesperson couldn’t have come close to this.”
One Destination, Many RoadsWhen you embark on a short sale, the biggest obstacle you’ll face is the lack of a clear, consistent, dependable path. “In Forrest Gump vernacular, short sales are like a box of chocolates,” Apart from the basics—submitting a hardship package and waiting for the bank’s answer—“you have to approach each sale individually and, at the same time, stay on top of a constantly changing landscape,” The McClintock's say.
That starts with an understanding of the federal guidelines that have been created for loan servicers, the entities that collect mortgage payments from home owners and attempt to work out distressed loans through modifications, short sales, deeds-in-lieu of foreclosure, or, if all else fails, foreclosure.
Borrowers who fall within federal guidelines may be able to accomplish a short sale using the Home Affordable Foreclosure Alternatives program. But the HAFA guidelines vary depending on whether the loan is held by Fannie Mae, Freddie Mac, or a private entity, so it’s important to know who owns the loan. Even if they don’t qualify for HAFA, borrowers may still be able to do a short sale—but factors such as the documents required in the hardship package, qualifying criteria, and speed at which a negotiator is assigned will vary. Learning the variations takes time.
After a sale, “I always ask the processor or negotiator, ‘Is there anything we could have done differently?’ ” In this way, we get to know each bank’s particular hang-ups, such as wanting every page of the short-sale package numbered.
As 25-year veteran of the business, “There are still too many lost faxes and inexplicable valuation problems,” Joel McClitock agrees. “There’s also too much ad hoc policy making by inexperienced lender representatives—and too much waiting on hold.”
The McClintock's avoid faxing altogether. “I use certified mail,” Joel McClintock says. “If a document is lost, we can say, ‘You received it at 10:38 a.m.,’ and then it’s mysteriously found. Even if it costs us $20, time is important.”
To curb problems, many servicers are turning to technology platforms that allow you and the servicer to collaborate throughout the short-sale process. The biggest, Equator, was first released as REOTrans in 2003, the platform was expanded about two years ago to handle short sales. It’s used by several major servicers, including Bank of America and Wells Fargo. In general, platforms such as Equator have been lauded for bringing more accountability to the process. But for some practitioners, particularly those with established systems, the change can be daunting. Picking up the phone to communicate an update and making a note in your file won’t suffice. All updates must be recorded in the system.
You’ll have problems if you don’t use the system properly, Michele McClitock says. “Also, beware of a subtle shift some lenders are making from a document-driven to a data-driven process in which you’re expected to do data entry,” Joel says. “It’s one thing to upload a financial statement form that has been completed by the seller and quite a different thing to enter the data on an online form. There’s a risk of introducing an error that could cause a problem in an otherwise approvable short sale.”
If technology is gaining importance, it still plays second fiddle to experience. “It’s a mistake to assume that the lender will place the short sale in the right program, properly apply program guidelines, or understand state-specific regulations,” says Joel McClintock. If you want to achieve the best possible outcome for the owner—a sale with no deficiency judgment—“fair or unfair, you need to be the smartest one in the room,”.
We set clients’ expectations at the outset. “We tell the seller and the buyer’s agent up front that we're going to come down hard on them because we need those documents signed and back the same day,”
We set clients’ expectations at the outset. “We tell the seller and the buyer’s agent up front that we're going to come down hard on them because we need those documents signed and back the same day,”
If you’re working with buyers, you need to assess their readiness. “Not all buyers have the temperament for a short sale,” Joel McClintock says. “Those who require a dependable closing schedule or lack flexibility probably aren’t the best candidates.” You also need to learn as much as you can about the listing and listing agent. Ask: How many short sales have you done? Have you had any hardships? Has an appraisal been done yet? Which lenders are involved?
JD McClintock finds about 10 properties in his buyers’ range, then does a phone interview with each agent. But just asking the questions isn’t useful unless you know why you’re asking, he says. Experience with different lenders will tell you, for example, whether the process will extend beyond your buyers’ time frame or the holder of a second lien will stand in the way of the sale.
Banks Are People, Too
Knowledge gives you bargaining power. “Agents will come in with a $300,000 offer. They’ll be dealing with the lowest-level bank employee, and the BPO will come in at $320,000,” says Joel McClintock. “They have worked on this for months, but they’ll walk away and say, ‘We tried our hardest.’ They don’t know there’s another way to go.”
That other way is to escalate. Joel McClitock has established relationships up the chain of command, enabling his team to cut 30 days off the typical four to seven months it takes to close a short sale, he says.
“There’s an art and science to escalation—when to do it, how to do it,” says Joel McClitock.
“Many real estate agents don’t want to do short sales because they don’t think they can get it done,” JD McClitock says. “Counter back to the banks! You can always provide comparables to support your value. If you’re weak, they’ll run right over you. And ask the seller to contribute. These second mortgages take huge hits; they can’t give you a dime. You have to have a backbone.”
It’s time-intensive work. “At any given time, we are negotiating 50 short sales,” Joel McClitock says. “There are many nights we're in the office going through every file, so we're ready if there’s a request. You have to be organized and know where each file is in the process.”
Deals can turn suddenly. “In one case, we had a cash buyer and bank approval,” Joel McClintock says. “Two days before closing, the bank said it was countering the offer by $15,000.” JD MCClintock jumped in his car and captured photos of comparables to show why the lower offer should stand. “Finally we got it done,” the McClintocks say in harmony. “The negotiators said, ‘You physically took the transaction in hand. Ninety percent of agents wouldn’t do that.’ ”
Joel recently worked with a transferee whose house was $150,000 underwater. His parents had cosigned the loan, and he didn’t want to hurt their credit. “Because he was current, the bank denied him,” says Joel, who reached out to a senior vice president and succeeded in changing the decision.
The point to remember in such a situation is that the bank is not the enemy, Michele McClintock says. “Bank employees" can be inept, but so can agents. They’re human and they’re overwhelmed. You’ll send them paper. They’ll lose it. You’ll send it again. That’s just the way it goes.”
How HAFA Has Helped
In 2009, the U.S. Treasury Department unleashed a torrent of new acronyms for servicers, all under the umbrella of Making Home Affordable. MHA provides guidelines and incentives to lenders to encourage mortgage modifications and to facilitate short sales or deeds-in-lieu of foreclosure in the event a modification isn’t possible or doesn’t work. Lenders start by qualifying borrowers through the Home Affordable Mortgage Program. Those who are eligible for HAMP (based on the size of their mortgage and their financial situation) but don’t qualify for a modification may be considered for the government’s Home Affordable Foreclosure Alternatives program. HAFA offers:
Guidelines for completing short sales and deeds-in-lieu of foreclosure.
Incentives for servicers and investors.
Moving expenses for sellers.
As we ended out conversation they mention that inexperienced short sale agents are welcome to send them referrals. "It's about doing the right thing for people, not a commission" say Michele McClintock.
The McClintock Group be reached at 561-331-2444 info@TheMcClintockgroup.com
In 2009, the U.S. Treasury Department unleashed a torrent of new acronyms for servicers, all under the umbrella of Making Home Affordable. MHA provides guidelines and incentives to lenders to encourage mortgage modifications and to facilitate short sales or deeds-in-lieu of foreclosure in the event a modification isn’t possible or doesn’t work. Lenders start by qualifying borrowers through the Home Affordable Mortgage Program. Those who are eligible for HAMP (based on the size of their mortgage and their financial situation) but don’t qualify for a modification may be considered for the government’s Home Affordable Foreclosure Alternatives program. HAFA offers:
Guidelines for completing short sales and deeds-in-lieu of foreclosure.
Incentives for servicers and investors.
Moving expenses for sellers.
As we ended out conversation they mention that inexperienced short sale agents are welcome to send them referrals. "It's about doing the right thing for people, not a commission" say Michele McClintock.
The McClintock Group be reached at 561-331-2444 info@TheMcClintockgroup.com