By now, most professionals in the real estate industry are aware that the U.S. Treasury Department issued a plan called the Home Affordable Foreclosure Alternatives program (HAFA) on November 30, 2009.  The HAFA program is intended to speed up and regulate the short sale process for borrowers whose loans are subject to the government’s loan modification program known as HAMP.  This means that, for HAMP eligible borrowers, if their loan modification fails or if they do not want to participate in HAMP, then they will be subject to this new short sale process. 

These new HAFA short sale rules are intended to simplify the short sale process, standardize short sale forms and expedite servicer and lender response times.  These are all laudable goals, which agents around the country have been waiting for a long time.  But, unfortunately for real estate agents, the amount of commissions they can be paid on HAFA short sale transactions might be less than they expected.

 The battle for payment of fair real estate commissions for short sales has been a long and difficult fight for the real estate community.  For the first several years of the current crisis, real estate agents were forced by the servicers and lenders to take a reduction in their commission as a condition of having short sale offers approved.  It was standard practice for lenders and servicers to pay no more than five percent for total real estate commissions in a transaction. 

The new guidelines and accompanying forms are contained in a 43 page servicing directive sent to lender and servicers this week.  It pretty closely follows the terms the Treasury Department announced earlier this year but adds specific forms including (1) a form instruction letter to homeowners;  (2) a short sale agreement between the borrower and servicer;  (3) a request for approval of short sale (which includes a very simplified HUD 1 and an automatic $1,500 relocation allowance for the borrower); (4) short sale approval and disapproval forms (so the borrower will know why their short sale was rejected; (5) several DIL forms and;  (6) a checklist for the servicer to follow.

These rules will be the rules for a vast majority of short sales in the future.  This is because they will be mandatory for all servicers who particiapate in the HAMP program which includes almost all the major servicers in the country and all FreddieMac, FannieMae, VA and HUD owned or insured loans.  The time table for servicers to implement the new rules is anytime between now and April 5, 2010.  However, due to the complexity of the new program, do not expect any servicers to implement the new guidlelines between now and the end of this year.

To make sure all our members understand the new program, we will be announcing a new webinar shortly to go over the new program and forms in detail.  In the mean time platinum members can find the entire 43 page program posted in the members’ section in the Short Sale category under Resources.

A major issue real estate agents have faced when negotiating short sales with lenders and servicers was that it was always a battle to try and get paid a full real estate commission on these difficult and time consuming transactions.  The loss mitigators working for the lenders always tried to force the agents to take a reduced commission as a condition of approving the short sale.   Not only was this frustrating for agents, it also put agents in a difficult position if not in direct conflict with the interests of their client sellers.  This was because by holding out for a full commission, the agent jeopardized the chances of the short sale being approved which could result in the seller’s property being lost at a foreclosure auction.

This forced real estate commission reduction began to really backfire against the lenders.  With buyers scarce and short sale listings increasing exponentially, selling agents who had qualified buyers had plenty of short sale opportunties to choose from for their buyers.   As a result, the buyers’ agents gravitated toward showing short sale listings that paid a full 6% real estate commission or were pre-appproved for a quicker closing.  Lenders who refused to pay a full commission on short sales were losing out because of their short sightedness of trying to claim that last 1% in a transaction.  Never mind the fact that if there is usually ever a transaction where a full commission is earned, it is the short sale.

Fortunately today, the full 6% commission has become the norm with HUD, FannieMae and FreddieMac now all authorizing payment of a 6% commission and prohibiting their servicers from trying to reduce the real estate commission if the 6% had been agreed to by both the borrower and the listing agent.  These three entities together control a vast majority of the delinquent loans in this country.  In case you weren’t aware of this change in policy or you are running into servicers who are still trying to fight you over your commission here is when the payment of a full 6% commission was officially authorized by each of those entities.

Today, I want to outline some of the recent steps that Treasury and the Administration have taken or will shortly be taking to improve the effectiveness of HAMP with the goal of strengthening the housing sector, helping millions of homeowners and laying the foundation for economic recovery and financial stability.

First, we are committed to helping eligible homeowners obtain a final modification if they are qualified for HAMP…………………………..

Second, we are developing a foreclosure alternatives program for HAMP, which will provide incentives for short sales and deeds-in lieu of foreclosure where borrowers are unable or unwilling to complete the HAMP modification process. We are aware that there are many borrowers whose modifications under HAMP will not be sufficient to keep them out of foreclosure; for example, borrowers who do not have sufficient income to support a modified payment. The Foreclosure Alternatives Program can help prevent costly foreclosures and minimizes the damage that foreclosures impose on borrowers, financial institutions and communities.

It is important for agents to get registered in the REOTrans system sooner rather than later.  Bank of America is only the first of many lenders and servicers that will probably start using this platform.   Already 16 of the top 25 lenders in the country use REOTrans for processing their REO properties.   Most importantly, since all Borrowers will now also have to independently register with REOTrans, those who aren’t represented by an agent will be referred to a REOTrans registered agent.

Although it is in the initial stages of implementation, at the present time the system for short sales works like this;  Certain documents will still need to be faxed to the lender, for example the Authorization,

As a Real Estate Broker, Lender and Investor, I have worked the foreclosure and distressed property market for over three decades.  As you can imagine, I have seen many people come and go in real estate over the years.  One of the main reasons for people leaving real estate is that they either lack the knowledge that the market will change or they are unprepared for the change when it comes.  Sure, many of these people have some short term success.  They may have learned one or two effective ways to conduct business, but within a few years, they are forced out of the market because the real estate cycle changes and they don’t have the ability or knowledge to change with it.

A recent example of the changing market would be after the Dotcom blow up of the stock market and terrorist attacks of 9/11.  After these events, our economy went into a tail spin.  The Federal Reserve responded by lowering interest rates to the lowest level in over 40 years.  Real estate took off and we saw one of the greatest real estate booms in history.  In Southern California, properties were appreciating between 20-30% a year.  One did not have to have much skill for success in this market environment.  One just needed to get into the market.  It did not matter what they did, just get in, buy a property and fasten your seat belt.  Appreciation and the euphoria of the market would take care of the rest.

Let’s take a closer look at a few types of people that were successful at that time but soon faded from the picture.

In today’s new market place more and more people in foreclosure that are upside down in their properties. They usually owe substantially more on their loans than the property is worth. Unfortunately, many agents today still do not know how to help these people.

Some may have heard about a short sale but don’t have the expertise to successfully complete one. Most agents struggle with short sales because they have not learned how to effectively manage the process.

To successfully work in the short sale market, you need to break down the short sale process into three steps. By breaking the process down it helps the agent focus on the important elements for completing each step. Once each step is mastered, the short sales process becomes systematic and easier for the agent to successfully complete a short sale.

The 3 Steps to Short Sale Success Are:

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–Lance Churchill