Scottsdale, Arizona-based National Short Sale Center says more than 50 percent of the homeowners it is working with to secure short sales have been approached by “circumspect individuals or companies” proffering fraudulent foreclosure rescue services.

With 20 percent of the nation’s homeowners underwater, the Obama administration recently introduced a new component of its Making Home Affordable program, aimed at steering struggling homeowners who do not qualify for a federal loan modification toward short sales. The government’s new plan will pay a servicer $1,000 for completing a successful short sale and will pay the borrower $1,500 to assist with relocation expenses.

While a short sale can prove to be a practicable alternative to foreclosure, National Short Sale Center says many struggling homeowners are confused about short sales and fall for deceptive offers, including phone calls, letters, advertisements, and e-mails (also known as phishing).

Travis Hamel Olsen, president of National Short Sale Center, stressed, “Under no circumstances should anybody be paying an upfront fee to complete a short sale. Unscrupulous companies use myriad ways to take advantage of unsuspecting homeowners. Usually if the deal seems too good to be true, then it probably is.”

FORECLOSURE SCAMS

Foreclosure and loan modifications scams are a growing area of concern for lawmakers, investigators, and the industry. The Federal Bureau of Investigation (FBI) is currently looking into more than 2,100 mortgage fraud cases-a 400 percent increase from five years ago. The recently enacted Fraud Enforcement and Recovery Act of 2009 allocates $500 million to the FBI, Justice Department, Secret Service, and Postal Service to combat mortgage fraud.

The types of fraud circulating include sale-leasebacks, quitclaims, stripping homeowner equity, and misleading homeowners into signing over deeds. And with the administration’s mortgage relief initiatives and its recent push for modifications, dozens of bogus companies with official-sounding names and fake Web sites mimicking the fonts and layouts of government sites claim to help struggling homeowners modify their mortgages. Some unsuspecting borrowers have fallen prey to unscrupulous con artists that take them for up to $7,000 before disappearing.

Olsen said, “The fraud usually comes through in the fine print, but foreclosure rescue teams and highly suspect scammers are basically taking homes through a variety of means, resulting in foreclosure and eviction.”

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In these difficult financial times, more and more sellers are finding they need to sell their homes for less than they owe on their mortgages, known as a “short sale .” This can be a good deal for you as a buyer, as long as you’re aware of the extra time and work required to make it happen.

The Mortgage Lender’s “Short Sale” Factors

The seller’s mortgage lender will be considering many factors in deciding whether to approve a short sale, including:

* Whether the seller is deserving of a break, due to financial hardship caused by unforeseen circumstances such as          layoffs, divorce or illness
* Whether it would be cheaper to simply repossess the house, make any necessary repairs and sell it through a real estate agent
* How many other properties the mortgage lender currently has in default
* Whether there are co-signors who can be held responsible for the balance owed on the mortgage

The Short Sale Process

Your chances of success with the seller’s mortgage lender improve if your communication with them is organized and complete. Your first contact with the seller’s mortgage lender’s “loss mitigation department” is crucial in making a good impression. You’ll want to send them what’s called a “Release” or “Authorization to Release Information” already signed by the seller, which allows the mortgage lender to talk with you about the seller’s mortgage.

In your first talk with the mortgage lender’s loss mitigator, you’ll want to find out:

* Whether they think a short sale might be a possibility
* What information they’ll need to complete the process

Loss mitigators sometimes receive bonuses based on how many defaulted loans they can clear up, so they’re more likely to pay attention to your sale if you can show them you’re taking care of as many details and objections as possible.

It will be necessary to be specific about the seller’s financial difficulties with what’s called a “hardship letter.” The mortgage lender may also require paystubs, copies of medical bills, checking account statements and other appropriate evidence from the seller. The seller’s mortgage lender will look at the seller’s credit reports to verify the seller’s financial predicament. This will all take extra time.
Broker’s Price Opinion

The mortgage lender will order what’s called a “broker’s price opinion,” which gives the mortgage lender some idea of what the property is actually worth in the current market. A broker’s price opinion will be based on:

* the value of comparable properties in the same neighborhood
* the general condition of the neighborhood
* the condition of the specific property in relation to neighboring houses

If the person who is inspecting the property needs to look at the interior of the house, you’ll want to be sure someone is there to let him or her in. You may also want to provide the inspector with copies of low comparable houses in the neighborhood, and high estimates on any needed repairs. The lower the broker’s price opinion, the more likely the mortgage lender will approve a short sale.

Settlement Statement Scrutiny

The seller’s mortgage lender will want to have an advance look at what’s called the ” Settlement Statement” or “Settlement/Disbursement Estimate.” The mortgage lender will be carefully reviewing:

* Commissions going to real estate brokers
* Where your financing is coming from (Cash? A loan?)
* Payments to cover outstanding liens and taxes
* Approximate date of the closing
* Any cash to the seller (a definite no-no)
* Any other expenses which may raise a red flag

While buying a home on a short sale can be frustrating and time consuming, your hard work can pay off in a home that’s worth considerably more than you paid for it.

Now that negative equity sales are accounting for more than half of the transactions in many markets if you’re not involved in any short sales you might be getting left in the dust.  Real Estate Agents, Mortgage Brokers, Short Sale Negotiators and Title Agents are all wrestling with the same beast – no matter how hard you work and how high your level of expertise, many short sale transactions will fall apart.

Lately, second mortgage holders have had no qualms about squashing deals over a few thousand dollars.  Just when FNMA and Freddie Mac have announced they will protect Real Estate Agent commissions in short sale negotiations, second lien holders are insisting on higher pay-offs and suggesting it comes from commissions.

Here’s a quote from a recent conversation with a negotiator in Citi’s loss mitigation department: “Citi’s position is that real estate agents should not profit from short sales and should share in the losses”.  Some lenders, including Bank of America and Citi, have suspended progress on many negotiations midstream until new authorization forms are signed on their letterhead.  Countrywide has insisted on second lien pay-offs before making determinations, then closed files if it takes more than a few days to get attain them.  Of course by now we are all getting accustomed to documents being lost or misplaced as part of standard operating procedure in loss mitigation departments.

As frustrating as all this sounds, nothing is more disappointing than working hard (very hard), for months and finally getting an offer accepted by the bank only to find the buyer, for whatever reason, is no longer interested in proceeding.

The reasons are many, but most could be avoided if the lenders could condense the timeline on the negotiating process.  In many instances the buyer’s due diligence clock doesn’t start until the offer is accepted by the lender and the buyer can choose to walk with limited consequences.  Now, everyone involved has run the gauntlet and the accepted offer is without a buyer!  Real Estate Agents, Mortgage Brokers, Title Agents and Short Sale Negotiators are “all dressed up and nowhere to go”.  The work has all been done and no one is getting paid! The distressed sellers and disappointed Agents need to find new buyers before the lenders acceptance of the offer expires, normally in 30-45 days.

Once again, time remains the # 1 obstacle to a smooth and successful short sale transaction. On the selling side it takes the form of the time spent negotiating with the lender and keeping the buyers engaged, all the while trying to keep the property from getting to the courthouse steps.  From the buyer’s side of the market, there is a teeming interest in purchasing these deeply discounted properties but without waiting for 4-6 months to see if an offer will be accepted while other opportunities come and go.

Many real estate professionals are finding salvation in a brand new, free cooperative service at RealEstateRoadkillUSA.com.  The website takes these “accepted offers in need of buyers” and presents them, not only as the best deals in the market, but ready to close immediately.  Remember, once an offer is finally accepted the lender doesn’t care who the buyer is as long as the bottom line remains the same.

Although the service has only recently become available, real estate agents and buyers are flocking to the website like bees to honey (or vultures to carrion).  These are the absolute hottest deals available and all the work has already been done to prepare them for closing.  Wouldn’t you have to be crazy to buy any property without looking here first?  Likewise, if the buyer is lost on an accepted offer it makes perfect sense to post it on RealEstateRoadkillUSA.com immediately.  Currently the website is servicing limited areas but opportunities exist for enterprising real estate professionals poised to serve as “gatekeepers” in their market.  Details are available in the “Join Our Network” section.

Like it or not, short sale transactions are going to represent a growing market for years to come.  Lenders are being encouraged to exhaust all options before foreclosing and hopefully they will streamline and homogenize the process in the months to come.  In the meantime we can only try to work smart and diligently to avoid “All Work and No Pay”.

For the sophisticated home buyer, the current market conditions present some unique
opportunities. Gone are the days when it is necessary to pay “full retail value”, unless
you are looking to buy a property with very unique characteristics, or in a very specific
location.

The current local inventory is full of “distressed” property listings. So how should you
proceed.

Firstly, I would recommend that all buyers work with a local expert. A well established,
local, full time, Realtor is the most able to correctly determine the current value of any
property.

There seem to be many “bargains” around, that are selling for a fraction of their previous
selling price. But are they really  such a “great deal?”  Your Realtor needs to complete a
“Comparative Market Analysis” (CMA), to determine the actual current value of any
prospective purchase. You may be surprised to learn that even though a property may
be listed for ONLY 60% of it’s previous selling price, that it is still overpriced by 10-15%
versus other competitive listed properties.

So be careful !

What should you be looking for ? What are the choices ?

Pre-foreclosures (short sales)

These are properties that are typically at some stage of the foreclosure process. At this
point the homeowners have determined that they will be unable to sell for a price, that
will allow them to pay off any existing notes & mortgages. They will have priced their
property at less than the existing debt and are waiting for offers.

Only when an offer has been received, can they start the “short-sale” process with
their lender. This process can take many months and there is no guarantee that the
lender will ever accept an offer – They are not obligated to do so !

So, as a buyer – do you have 6 or more months to wait for a decision?

Bank Owned REO

These are properties that have already been foreclosed, and now belong to the lender.
They are typically listed with a local Broker, and offers are then presented to the bank
for their approval. Again there is no guarantee that they will accept an offer. The time for
acceptance can take many weeks, and they are geared up to receive and consider multiple
offers.

There is no guarantee that the price of the REO is actually a good deal. Very often buyers
fall into the trap of assuming that because it is a “foreclosure” property owned by the bank
-that it must be a steal !  Often this is not the case.

Short Sale Approved (Road Kill)

These are pre-foreclosure properties, on which an offer has already been submitted and
approved. For various reasons the “buyer” is unable to close. This then means that the
price has already been negotiated and a new buyer can close, normally within 30 days.
At this stage the bank do not care who’s name is on the contract. They have already made
a decision to take a loss and are just looking to close the transaction, and get the property
off their books, as soon as possible.

So if you are looking for a quick decision, a quick close, and at a price that can be quickly
researched for a “steal”. Then ROAD Kill is for you.

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