Cautionary Tale Regarding Wells Fargo
The Sarasota Herald Tribune recently published an article that stated that Wells Fargo had a short sale incentive/fast track program in place. The article, which is consistent with other published articles we have seen, suggested that Wells Fargo would be willing to fast track short sale approvals and even make payments to short sale sellers under certain circumstances to encourage sellers to participate. As you can imagine, we received a flurry of phone calls and did some digging.
We contacted Wells Fargo’s media department, and they confirmed that Wells Fargo does indeed have such a program. However, they could provide no details. We then had each of our five short sale team members independently contact several Wells Fargo negotiators regarding the article. In each case, the Wells Fargo negotiators denied any knowledge of such a program (and in one instance, did so after reviewing the article we supplied to them). Indeed, if Wells Fargo has such a program, it seems that none of the actual Wells Fargo short sale negotiators have actually been advised of the program.
Please keep this in mind when establishing expectations for short sale sellers who have Wells Fargo mortgages.
New Berlin Patten Service: Previously Approved Short Sales
As anyone who handles short sales understands, there are many instances where a short sale gets approved, but for some reason the Buyer is unwilling or unable to close. Due to the volume of short sales that Berlin-Patten handles, we see this situation quite frequently. Recognizing that a great deal of the legwork to get the short sale approved has often times already been done, we wanted to see if we could better assist our clients and their listing agents in their efforts to sell their homes prior to foreclosure. The most obvious way we felt we could help our clients and referral sources, we concluded, was to find a way to assist them in securing a replacement Buyer as quickly as possible and proceed to close with the replacement Buyer.
As such, effective next week, when Berlin-Patten obtains a short sale approval, and the Buyer is unwilling or unable to close for some reason, Berlin-Patten will offer the seller and seller’s agent the option to immediately publish to our extensive database of real estate professionals the pertinent terms of the previously approved short sale, such as approved price, lender timeframes, and buyer restrictions. This will only be done with the Seller’s and listing agent’s written approval, and we will only publish this information once a week.
It is our hope that in providing this weekly service to our clients and referral sources, we can also offer anyone on our distribution list the opportunity to not only get relevant legal information through our blog entries, but now also offer them the opportunity to get the most recent information available on previously approved short sales that our firm has handled.
A word of caution! A previously approved short sale is NOT a preapproved short sale, and in some cases, the lender’s will nevertheless require the process to begin anew. However, with a previously approved short sale, some lenders will not require the process to begin completely anew (or will offer a more streamlined approval process), but more importantly, the parties will have the benefit of knowing what the lender is likely to accept the second time around, thus maximizing the chances of a successful closing prior to foreclosure.
Bank of America Short Sale Seminar Summary
The Berlin Patten short sale negotiating team recently attended a Bank of America Short Sale Seminar. The following is a brief summary of what Bank of America advised its seminar’s attendees:
- Short sales are about two primary things to Bank of America: Hardship and net proceeds
- Investors are reluctant to postpone foreclosures as the buyer may not hang in. There is NO difference to the investor whether it is a cash buyer or a financed buyer.
- When short sales initially became prevalent, negotiators had on average a 600 case workload. The average now is 100 files.
- Average number of days from initiation of short sale approval process to short sale decision is 50 days (Negotiator Comment: HAFA files take twice that long, if not more)
- New cooperative program: Relocation money can be used for other liens, cash contribution towards delinquency, and HOA fees. BOA is communicating this program to homeowners by phone and e-mail. This program is offered for those who apply 9/26/11 – 11/30/11 and only to those who do not yet have an offer.
- HAFA – Both the 1st & 2nd liens have to participate or they are not eligible. The homeowner has to find out if the investor on both loans participates in HAFA by calling their lender.
- BOA is the servicer for the investor. They are NOT the investor and do not own the loan. BOA has 500+ investors. Each loan may have several investors who have to approve the short sale. Each investor has their own individual requirements. What may be acceptable to one investor may not be acceptable to another. ALL have to agree to the terms. Whenever you have to go back and ask for an extension, deficiency waiver, negotiate a cash contribution, etc., the negotiator has to go to each investor for approval. This is why it takes time and why it may not be approved. BOA has “delegated loan authority” for some investors which means that they can make decisions within prescribed investor guidelines. They also have “non-delegated” loans in which the investor must make the decision. Each loan may have both types of investors, if more than one.
- If the property has structural damage, the investor requires that the seller file an insurance claim and present the proof of claim.
- Property valuations are good for 90 – 120 days. Why can’t BOA share the value? Answer: “Because you didn’t pay for it.” A question was asked by someone in the audience, “What if we agree to pay for it?” Answer: “You still can’t have it.”
- For FHA & VA loans, you can request and receive the appraisal.
- The valuation for a sole property is not necessarily the sole determinant for approval. Investors are making the decision based upon the whole neighborhood, not just this particular property, especially if they have invested in multiple properties in that neighborhood.
- You can request reconsideration of value. You must provide comparables, pictures (a big thing if problems with the property!), bids for structural damage (need 3 bids).
- Questions to ask prior to the short sale:
- How many investors?
- Is there MI insurance?
- Is there an evaluation on record and when does it expire?
- NOTE: The homeowner should call and ask the above questions as they need to be known before the short sale is submitted.
The Berlin Patten short sale team will continue to keep you abreast of each lender’s specific rules and guidelines. We plan to specifically address some of the topics above in more detail at a later date, however, in the meantime, please contact us if you have any questions. And please keep in mind that this is what Bank of America advised us. It does not mean that we necessarily agree with some of their contentions.
Response to Anonymous Blog Entry: Title Agents should still not be conducting short sale negotiations
On or about September 30, 2011, an anonymous reader provided a response to a blog Berlin Patten had sent to its readers regarding who can or should be engaged in the negotiation of short sales. While we debated whether or not to further comment on the subject (as the blog response did not really specifically address the activities we attempted to discuss, namely negotiating short sales by title agents), we did not want our readers to be misled by the response to our original blog. While some issues are subject to some degree of interpretation or debate, we do not feel that the issue we intended to underscore in our blog entry is the subject of any interpretation or debate.
It remains our opinion that any title agent involved in the “negotiation” of short sales should also be licensed to practice law in the state of Florida or be a licensed mortgage broker. If they are not, Florida law provides for somewhat severe sanctions. We do not disagree with the fact that a non-lawyer or a title agent can merely request a payoff from a lender. In our opinion, however, that ministerial or clerical task does not constitute short sale “negotiations” and such conduct was not the focus of our blog entry.
The response to our blog entry cites potentially misleading material. Specifically, the Opinion (dated 8/19/10 to which the Blog entry refers) addresses a very narrow issue, namely the ministerial or clerical act of requesting payoff information and furnishing certain documents in connection therewith. The blogger fails to address the focus of our concern, namely those title agents who are either intentionally or unintentionally performing true short sale negotiations. Our concerns are fairly simple.
First, the Florida Bar has begun to weigh in on the subject and has conducted hearings addressing the issue of whether short sale negotiations constitute the unlicensed practice of law. While no definitive conclusions have yet been reached by the Bar, it is our opinion that the act of truly “negotiating” a short sale involves a great deal more than the ministerial or clerical function of “paper pushing,” and therefore constitutes the practice of law. In fact, we believe that the term “short sale negotiations” encompasses almost everything except the simple request for the short payoff. We feel the Bar will ultimately draw that same conclusion. In fact, the attached article, published in the Winter of 2010 in ActionLine, entitled, “Nonlawyer Assisting the Short Sale Seller: Ministerial Act or UPL,” provides an opinion consistent with that of Berlin Patten. Indeed, the essence of “negotiating” short sales involves not the initial request for a payoff, but among many other things the following: the negotiation of and/or consultation with respect to deficiency balances, promissory notes, payoff terms, language of approval letters, post closing restrictions, and the language of documents that short sale lenders require the parties to execute at or prior to closing.
The definition of what a short sale “negotiation” might involve became much more important after the Florida legislature passed a bill effective January 1, 2010 (and modified most recently in July, 2011), wherein it became unlawful for any person to “act as a mortgage broker” in Florida without a current, active mortgage broker license. The definition of a mortgage broker is now defined in Section 494.001 Florida Statutes as ”…for compensation or gain, or in the expectation of compensation or gain, directly or indirectly, accepting or offering to accept an application for a mortgage loan, soliciting or offering to solicit a mortgage loan on behalf of a borrower, NEGOTIATING OR OFFERING TO NEGOTIATE THE TERMS OR CONDITIONS of a new OR EXISTING LOAN on behalf of a borrower or lender…” (Emphasis Added).
In the Spring of 2010, the Florida Land Title Association, which is the mouthpiece for title agencies throughout the state of Florida, in an attempt to protect its agents from potential criminal liability associated with this new statute, published its report in response to the new legislation (a copy of the first two pages thereof is attached), and interpreted the legislation as follows “with respect to the title agent’s business, unless you are a licensed mortgage broker or attorney representing a client in the negotiation of a short sale, you are prohibited from negotiating a short sale. Whoever knowingly violates these statutes commits a felony of the third degree. Each such violation constitutes a separate offense.” Sec. 494.0018, Florida Statutes.
This is an extremely definitive, unambiguous opinion, and there is no “compensation” exception or other caveat therein for those title agents who might be negotiating short sales for “free,” as the anonymous blogger infers. The reason is simple, the FLTA clearly recognizes that title agents who are negotiating short sales would only be doing so if they expected indirect compensation (something that is also prohibited by the statute), namely to get the fees associated with the eventual closing of the transaction (if they are successful in getting it approved). They are not doing the work out of the kindness of their hearts.
While the Opinion referred to in the anonymous blog and the FLTA each agree that a title agent who is merely requesting estoppel information or merely providing documents would generally not be considered engaging in “negotiations” (and we agree), neither stand for the proposition that a title agent conducting true short sale negotiations is somehow exempt from Sec. 494.0018 Florida Statutes, whether or not they get paid directly for their work, and any suggestion to the contrary is extremely dangerous.
From and after January 1, 2010, it became unlawful for licensed title agents to conduct true short sale negotiations unless they were also a lawyer or licensed mortgage broker, and it remains our opinion that the act of conducting short sale negotiations by title agents (whether for compensation or not) should be performed only by one who is also an attorney or a licensed mortgage broker. Any title agent who is conducting short sale negotiations from or after January 1, 2010 should use great caution to determine what extremely limited activities they can or cannot perform, particularly given the severe sanctions associated with a violation of Section 494.0018.
Short Sale Negotiations
We have been asked by several real estate agents to investigate whether or not a title company or title agent can conduct short sale negotiations. One of Berlin Patten’s contacts at the Florida Department of Financial Services, Bureau of Investigation, Title Services, responded to our inquiry as follows:
“The license for a title insurance agent does not authorize the agent to negotiate short sale transactions, or any type of loan modification. A person who wants to negotiate a short sale needs to be licensed by the Office of Financial Regulation as a loan originator (I believe). The alternative is to be an attorney eligible to practice law in Florida. The Florida Supreme Court has made it very clear that title insurance agents are allowed to issue documents related to a closing only when those documents are directly related to the title insurance transaction. By creating new documents, or modifying existing documents, these agents may be engaging in the unlicensed practice of law as defined by the Supreme Court.” (Emphasis Supplied)
Consequently, it is Berlin Patten’s opinion that a title agent who wishes to conduct all or any portion of the short sale negotiations on behalf of a client must also possess a license with the Office of Financial Regulation or be a licensed attorney. Any referral to a non-licensed title agent to perform such services could be a negligent referral.
It is also our opinion that this same analysis applies with equal force to licensed real estate agents who are conducting short sale discussions/negotiations for their sellers. The failure to possess a license with the Office of Financial Regulation or a Florida Bar license could cause any such real estate agent who is conducting short sale negotiations for their sellers to lose their real estate license, no matter how good their intentions.
Lender Incentives
Some lenders are reaching out to borrowers with incentives in order to encourage them to complete a short sale. For example, Chase is offering sellers between $20,000 and $35,000 at closing (yes, this is true!). The HAFA Program allows qualified sellers who participate in the program to receive up to $3,000 at closing. Wachovia and Litton solicit borrowers through letters, which allow sellers to receive up to $5,000 at closing. At this juncture, we have no reason to doubt that some, if not all of these programs are indeed quite legitimate. In fact, we have assisted borrowers in successfully completing many of these programs.
However, with these incentives come questions, and some degree of caution should be exercised. Are there hidden requirements? Are there adverse tax implications? Has the lender explained all of the details of their respective programs to the borrower? Will the deficiency be clearly waived at closing?
These questions can be difficult to answer unless some analysis is done of the borrower’s specific circumstances and the specific proposal made by the lender. As such, it is Berlin Patten’s opinion that if the borrower is asked to participate in one of these programs, that the borrower should review the terms of the incentive program with a real estate attorney and discuss the tax implications with a tax attorney prior to participating in any such program.
Berlin Patten Update – Short Sale Leasebacks
We have seen a recent increase in the number of short sale contracts that contemplate a leaseback to the seller. Please be advised that most short sale lenders will not permit any such arrangement between the buyer and the seller that permits the seller to remain in the property post closing. In fact, most short sale lender affidavits/agreements specifically prohibit the practice.
As such, if your seller expresses an interest in leasing the property back post closing (or otherwise occupying the property post closing), the seller should first contact his/her short sale lender to determine if their lender will permit the arrangement. In most cases, they will not.
Fraud Investigation – A Top Priority for Freddie Mac
In previous blogs, we have discussed our concerns about short sale fraud and the warning signals to watch for. According to Freddie Mac’s Mortgage Fraud Officer, Short sale fraud has also become the top priority for Freddie Mac’s fraud investigation unit as well.
Per the attached article, recent trends that Freddie has been alerting Real Estate Professions to include:
- Falsely indicating on a new short sale listing that there is an offer on a property in order to discourage legitimate offers and protect an accomplice’s planned low bid.
- Manipulating the short sale listing price by making the house look more distressed than it really is (“reverse staging”), inflating repair estimates, or using similar tactics designed to obtain an artificially low home value on the Broker Price Opinion. (Our requirements prohibit the buyer, buyer’s agent, buyer’s attorney, or a third-party short sale negotiator to be the contact point for the agents preparing the BPO.)
- “Flipping” schemes where the fraudster “buys” a house at a short sale without putting down any of his own money and then sells it a few hours (or days) later to a legitimate buyer at a much higher price. These are complex multi-step schemes that use falsified title and/or loan documents to fool a lender into approving the ultimate buyer’s mortgage, which the fraudster uses to settle the earlier closing on the house he “acquired” at the short sale for a much lower price.
- Manipulating the HUD-1 settlement statement so the fraudster can skim away net proceeds from the sale for himself or other parties in the transaction without the seller’s or investor’s knowledge. (The HUD-1 is the document that itemizes all fees, charges, and other funds involved in a home sale.
The article also states that as a result of the uptick in short sale issues, Freddie Mac now requires all of the parties involved to sign an affidavit attesting that it is a true arms-length transaction.
With short sale fraud on the rise, Real Estate Professionals need to ensure that their sellers are being properly advised and represented. Berlin Patten will continue to stay abreast of the trends in short sale fraud to help prevent sellers from becoming unsuspecting be parties to it.
Assignable Contracts & Specific Buyers
Please be advised that short sale lenders are getting very strict about approving the specific buyer identified on the contract. As such, lenders are carefully scrutinizing assignment provisions in contracts. Short sale lenders who are reviewing contracts (that permit the contract to be assigned) are kicking back the contracts more and more frequently.)
Lenders are also increasingly approving the specific buyer on the contract. What that means is that lenders are not permitting last minute buyer changes or additions. If your buyer attempts to add a buyer or change the name, that is increasingly causing lenders to require the parties to begin the short sale process from scratch.
As such, to maximize the chances of getting your short sale approved and avoid delays the process, we strongly recommend (a) that any contract you submit for short sale approval NOT be assignable, and (b) that you make it clear to your buyer that there can be absolutely no changes to the name of the buyer whatsoever, including the addition of last minute parties and/or last minute entity formation.
Finally, please be a bit wary of submitting offers from corporate buyers who do not appear to be end users. While you may need to do so, please be advised that Berlin Patten had a recent instance in which a lender actually revoked an approval due to its belief that the corporate buyer was a flipper. The sole basis for such conclusion was the fact that the buyer was a limited liability company that had bought (but not sold) other parcels recently.
While we strongly disagree with the lender’s approach and rationale, it is clear that lender’s do not like to approve short sales where they believe the property might be immediately flipped for a higher amount. They are carefully scrutinizing any transaction that has red flags (at least in their opinion) and appear to be more than willing to run the risk of rejecting legitimate deals to weed out transactions that they feel are flip transactions.
Berlin Patten’s Short Sale and Bankruptcy Services
Real Estate professionals are frequently confronted with listing a short sale property encumbered by two or more mortgages and a seller who is strongly considering bankruptcy as its “exit strategy.” We have struggled with that same scenario… working on a short sale for months, and then the seller decides to file for bankruptcy. At that point, the deal usually dies.
But that does not need to be the case. In fact, we believe that short sales and bankruptcy can go hand in hand if the bankruptcy lawyers are working with the real estate lawyers/short sale negotiating team. That is why Berlin Patten elected to add bankruptcy to its array of legal services.
Berlin Patten believes that a short sale can be successfully completed even if the borrower is considering bankruptcy. For that reason, Berlin Patten’s bankruptcy services will be different than the traditional bankruptcy services. Our legal counsel will give due consideration to the value of completing a short sale and how the bankruptcy may actually facilitate the completion of a short sale, even if the borrower is considering (or even files) for bankruptcy protection.
