There are many challenges for brokers who sell short sale properties. Using MH Solutions Inc. to handle both the busy work and the skilled negotiations involved with a short sale helps to improve your chances for a successful closing.
Stay MARS Compliant
Recent changes to the Mortgage Assistance Relief Act (“MARS”) rules make it less burdensome on real estate brokers who find themselves involved with a short sale, however the changes do not mean that an agent does not need to be aware of and comply with certain aspects of MARS. In particular, if an agent finds themselves in a short sale situation they will need to be sure to not give any misleading or inaccurate predictions of success, outcomes, or processes.
It’s easy to stay MARS compliant when you use MH Solutions Inc. MH Solutions is a Maine State licensed Debt Management Service Provider that has been providing short sale assistance since 2004. By using MH Solutions Inc you can rest assured that you will not fall out of compliance with the FTC’s MARS ruling.
For real estate brokers who market themselves as providing short sale services the requirements of MARS still apply and they will need to provide the MARS Disclosures, and comply with all other aspects of the MARS rules including, but not limited to, not accepting any fees in advance of services being provided, not misrepresenting material aspects of their services including guaranteeing specific results, not counseling clients to cease making payments to their lender, maintain records for at least 2 years, etc. They should also be licensed under Maine’s Debt Management Services Act in the same manner that MH Solutions Inc is.
The Mortgage Assistance Relief Act was initially intended to protect consumers from real estate professionals marketing to help them do loan modifications. For detailed information you can read The Final FTC Rule for Mortgage Assistance Relief Service. Short sales, by default, have been looped into the Act, where they really don’t apply.
Real estate agents that wish to use MH Solutions to handle their short sales will be adequately covered under the FTC MARS regulations.
List the property correctly
We suggest that your listing agreement reflect a 6% commission. There was a time when we recommended a 7% commission however this seems to encourage lenders to knit-pick the HUD 1, slowing things down and often causing problems.
You should plan on having your client authorize you to conduct price drops so that you do not have to waste time coordinating price drop paperwork every other week. In your MLS remarks your seller may wish to have you indicate that this is a short sale in order to appeal to the most potential buyers. You will want to indicate in your remarks that “buyer is to assume $2,500 service fee”. That way there will be no question about the loss mitigation service fee.
Set proper expectations
The short sale process takes time, requires patience, and often requires flexibility and a little compromise. One of the best things that you can do is set proper expectations with both your seller and the buyer and buyer’s broker. Let your seller know that they will need to visit the Maine short sale seller resources page of our website and review all of the information there. Here they will learn about the short sale process, their options, and the potential obstacles involved with a short sale. They can also find information on the foreclosure time line and correspondence they may receive from their lender. Your seller will have access to legal advice through one of our affiliated attorneys.
You will want to get permission from your seller to give the buyer’s broker updates when you receive them from MH Solutions Inc. Keeping the buyer informed will help keep them from backing out of the deal. Be sure to let them know that short sales can take several months to get approved. We require a minimum of 90 days to obtain short sale consent. Please be sure to allow a minimum of 90 days for lender consent on the Short Sale Addendum. When the short sale approval letter comes the lender will normally allow no more than 30 days to close. An appraisal for the buyer’s lender should be ordered immediately upon short sale consent. Again, please be sure that the Short Sale Addendum reflects this 30 day maximum.
Please have the buyer and their agent visit our website for important information on what they can expect during the process.
Do A Preliminary Title Search
We require that preliminary title work be completed before we submit a short sale package to a lender. This can be paid for by the seller or one of our preferred title companies can do this and their fee will be billed to the Seller’s lender on the HUD at closing.
Price it right
If you do not already have an offer, you will want to price the property correctly. Typically you will want to price the property just above your CMA. Your goal should not be to get an offer on the initial listing price, as this will indicate to the lender that you may have been able to get more for the property. It isn’t the end of the world if you do get an offer right away, but it could raise an eyebrow. What you should do is list slightly higher than you expect to sell for. Then you should conduct bi-weekly price reductions based upon the following schedule:
| Listing price | Reductions |
| < 100k | $5,000 |
| 100-200K | $7,500 |
| 200-300K | $10,500 |
| > 300K | Custom |
Select the right offer
The highest offer is not always the best offer when it comes to short sales. Please have MH Solutions review all offers before they are signed by the seller. This will help prevent tying the seller’s hands to an offer their lender will never approve for a short sale. We can help you structure the counter offer to give your seller the best chance of selling the property.
Take back up offers
We highly recommend maintaining the right to continue to show the property when it is under contract. Any offers that do come in should be kept as back up offers only. These back up offers should be submitted to the lender only if the first offer falls through. Submitting multiple offers to the lender at the same time mixes up an already disorganized lender and can slow down the process. Not to mention that a buyer who has been willing to wait patiently for short sale approval and not pursue other options should be rewarded. After all, such buyers are the solution to your seller’s problem. It is up to the seller to determine if they would like to submit multiple offers to the lender, it is not up to the buyer. We recommend having it written in your listing agreement that you will accept back up offers to be submitted to the lender only if any prior offer is declined by the lender. If the lender makes a formal request to the seller to see all offers, then we recommend sending all offers in for their review.
Create a strong Purchase and Sale Agreement
The best contracts will have no contingencies and all due diligence starts from execution not from short sale approval. Surprisingly, all cash offers, do not seem to make a difference with short sales. Lenders seem to always go with the offer that nets them the most money.
Under the Other Conditions section you will want to include these phrases:
On the short sale addendum we require an minimum of 90 days to get short sale consent and no more than 30 days to close once the approval has been given. Click here for an additional addendum that will make your contract much stronger.
Finally it is a good idea to require the use of a competent title company. We have seen several deals go belly up because the title agent had no or limited experience with short sale closings and didn’t follow proper procedures. We would be happy to recommend a good title company. Please let us know the name, telephone number, fax number and email address of the contact at the title company by the time a fully executed contract is delivered.
Submit the necessary paperwork
We will aid in collecting the necessary short sale package items from the seller. Please deliver the checklist to them as early as possible so they can start gathering the necessary information. We will let you know if we have any difficulties collecting information from them so the process doesn’t get slowed down.
You will need to provide us with
- A copy of the fully executed P&S and addenda
- A copy of the listing agreement
- A copy of the listing history (also known as “Property Archive View”)
- A property and price specific pre-approval or a proof of funds letter from the buyer
- The Loss Mitigation Service Agreement signed by the buyer and seller (please request this from our office)
Go to the BPO
Since so much of the bank’s decision rides on the BPO or appraisal value, it is important that the agent doing the BPO is well informed about what you have done to market property and any faults of the property that reduces its value. You must be there to advocate for your seller.
Get the highest commission
We understand that you need and deserve to get paid well for all that you do. We battle hard to keep your commissions intact. However, some lenders have guidelines that prevent them from paying the commission that you have on your listing agreement. We hope that more lenders follow FANNIE MAE and allow 6% on short sales. Currently some lenders will only pay 5% and on rare occasions 4%. A few tips that can help insure you get the most possible are:
- Don’t list a property you own, instead refer it to another agent and collect a referral fee
- Avoid dual agency
- Indicate a 6% commission on the listing agreement
- Let the buyer agent know that any decrease in commissions due to lender negotiations will be split with them.
The loss mitigation fee
We collect our fee from the buyers who are getting a great deal on a property. Please have the Seller and the Buyer sign our Loss Mitigation Service Agreement. We only get paid if the deal closes and the payment must come directly from the buyer and cannot be paid from new loan proceeds.