When faced with unaffordable mortgage payments, your
house can feel more like a cage than a home. You may feel
trapped because it’s hard to know what to do to improve
your situation, and you may just want to give up.

Don’t give up!

The reality is you don’t have to be a prisoner to a
mortgage you can no longer afford. You have options and
you’re not alone. I can help you find the key to financial
stability through education and a greater understanding
of your alternatives.

Learning Your Options

You actually have many options when it comes to
seeking relief from challenging housing payments. When
reviewing the following list, think about which alternative
may be best for your specific situation.

Short Sales

Generally considered one of the most viable alternatives
to foreclosure, short sales allow homeowners to minimize
financial damage and move on from a burdensome,
unaffordable mortgage. In many cases, short sales allow
borrowers to qualify for a new mortgage in as little as two
years, as opposed to five years or more after a foreclosure.

The following are some of the
benefits of short sales:

• Avoid foreclosure at no cost to you
• Lesser impact on credit scores
• Security clearance protection
• No challenges to future employment
• Retain some control over the sale of your
property (vs. public auction)
• The ability to negotiate away a deficiency
judgment (collection of your mortgage debt)
• Shorter waiting periods to get another mortgage

FOR IMMEDIATE RELEASE

As Foreclosures Rise, Trademark Loss Mitigation Steps in to Help Homeowners

This is the first video of Trademark’s series on Marketing To Distressed Homeowners.  The video will cover how to set up twitter, a number of easy add-ons and techniques to maximize your Social Media Presence.

New HAFA Changes

In March 2009, the U.S. Treasury issued guidance for loan modifications by participants in the Making Home Affordable Program.  The program was  updated and expanded in April of 2010 to include the Home Affordable Foreclosure Alternatives Program (HAFA).

HAFA  provided borrowers with an alternative to foreclosure through a short sale or deed-in-lieu (DIL) of foreclosure.
On August 9, 2011, the Treasury Department issued yet again another program update Supplemental Directive (11-08) (Click on link to download a copy) – however, for those homeowners that can benefit by and qualify for this program, these changes are not all that bad!

 
The new policy changes and clarifications of previous HAFA policies are as follows:
√    Borrowers are currently provided with a 14-day period to respond to a servicer’s invitation to participate in the HAFA program. The 14 calendar day period response time is only intended to give the borrower a guaranteed minimum time period to respond to the servicer. It is not meant to that if the borrower elects to participate in HAFA after the 14-day period that they are not eligible. Servicers may consider a borrower for HAFA whether or not they respond within the 14-day period.

√   Unless prohibited by investor rules, servicers should utilize the HAFA program rather than a lender’s or servicer’s proprietary short sale process in all cases where a short sale is approved by the servicer and the transaction meets the guidelines of the HAFA program.

√    It is clarified that the aggregate cap of $6,000 that is available to satisfy subordinate liens applies only to subordinate liens that are secured by a mortgage on the subject property. The $6,000 cap is not applicable to non-mortgaged subordinate liens such as mechanics’ liens or homeowner association liens. Servicers are allowed to authorize any additional portion of the gross proceeds to be used as payment to the subordinate non-mortgage lienholders in exchange for a lien release and release of borrower liability. This means that more than $6,000 can be paid to subordinate liens as long as no more than $6,000 is paid to the mortgage liens.

√   Before October 15, 2011, each servicer must develop and implement procedures that the servicer will follow to periodically to reevaluate property value and to reconcile discrepancies between the servicer’s market value estimate or BPO and the market value data provided by the borrower or the borrower’s real estate broker.

√   The term “Minimum Acceptable Net Proceeds” in a HAFA Short Sale Agreement does not really mean it is the minimum amount that must be netted from the short sale. The new supplemental directive clarifies that servicers are not prohibited from accepting a purchase offer that would result in net proceeds less than the previously stated minimum acceptable net proceeds if the servicer determines that the proposed sale is in the best interest of the investor.
√    Borrowers may use their $3,000 relocation incentive to pay for transaction costs that the borrower has instructed the closing agent in writing to pay, such as the cost of legal representation, overdue utility bills or minor repairs identified during the property inspection. However, borrowers may not use the relocation incentive to pay for the release of subordinate or non-mortgage liens recorded against the property and borrowers may not be required by the servicer, as a condition of the sale, to utilize the relocation incentive to pay any transaction expenses.

√    Servicers must, no later than October 15, 2011, complete and post on their websites a HAFA matrix explaining their HAFA program in a format that can be used to compare it with other servicers’ HAFA programs. The matrix is intended to assist the borrowers and their real estate agents in understanding any unique components of the particular servicer’s HAFA policy or any differences in the HAFA policy of a particular lender. The Treasury Department will post on the MakingHomeAffordable.gov website information for the public about the web location of each servicer’s HAFA matrix. This is intended to make it easy for borrowers and their agents to identify in advance any different requirements between the various servicers’ HAFA policies.

 
In California, many short sale sellers are opting out of HAFA these days. This is due, in part, to the fact that California short sale sellers now have the anti-deficiency protection provided from all lien holders in Senate Bill 458.

 
In addition, the HAFA program can add considerable time to the short sale process putting significant pressure on sellers and buyers alike.

 
Nevertheless, there are some real benefits to HAFA for certain short sale sellers. If your clients are considering a short sale, you should definitely advise them to do the research and select the approach that best fits their needs.

FTC Mortgage Assistance Relief Services (MARS)

Although the FTC’s MARS Rule took effect on January 31, 2011, most real estate brokers have little or no knowledge regarding the impact on their practice.

Why hasn’t someone told me about MARS?

Most publications only recently have had a chance to read through and analyze the MARS Rule.  Not only is the Rule 15 pages long in semi-legalese; the actual “law” as added to the Federal Register 16 CFR Part 322 Mortgage Assistance Relief Services; Final Rule is 51 pages plus another 160 pages of explanation and history.  In other words, government work at its finest.

The new MARS rule does apply to real estate brokers (and their agents) (as well as title officers, etc.) who attempt to negotiate or otherwise provide services and/or endeavor in efforts related to halting a foreclosure or obtaining lender or servicer approval of a short sale.  The penalties are steep and more than just your entire commission is at risk if you step over the line.

Watch the video by attorney Adam Buck of Buck Edmunds Law for an in-depth summary of how you can comply with this complex rule when marketing to homeowners and negotiating short sales.

If you are an agent/broker, involved in short sales, or are a 3rd party short sale negotiator and have not yet heard about or sought legal advice on the new FTC Mortgage Assistance Relief Services (MARS) Rule that takes effect on February 1, 2011, it would be worth your time to talk to your Broker, attorney or other legal adviser.

I am not an attorney and this is not legal advice!  You should seek your own legal advice from a legal practitioner.  This post is a summary of the rule, and interpretations of that rule by my attorney and the opinion of other attorneys I have talked to or read in various blogs.
I think it is easy when first looking at this rule as a short sale negotiator, real estate broker/agent or investor, to discharge any required compliance to the rule, particularly if one is not charging the homeowner any fees for services.

When looking at the overview on the FTC’s website, http://www.ftc.gov/opa/2010/11/mars.shtm , it is easy to surmise FTC is clearly targeting predatory Mortgage Relief Servicers, particularly those who were charging homeowners upfront fees and providing false marketing promises.

Case in point, FTC Chairman Jon Leibowitz said, “At a time when many Americans are struggling to pay their mortgages, peddlers of so-called mortgage relief services have taken hundreds of millions of dollars from hundreds of thousands of homeowners without ever delivering results,”.  Thus, FTC is issuing the Mortgage Assistance Relief Services (MARS) Rule to protect distressed homeowners from these mortgage relief scams that have sprung up during the mortgage crisis. Particularly those operations that falsely claim that, for a fee, they will negotiate with the consumer’s mortgage lender or servicer to obtain a loan modification, a short sale, or other relief from foreclosure.

However, my attorney,  Todd J Sullivan J.D, and other attorneys are taking a more conservative approach.  They contend that if you are engaged in any short sale endeavor undertaken in an effort to stop a foreclosure sale, take any fees associated in that short sale, engage in  short sale negotiations or use a 3rd party negotiator, you probably fall under the ruling should take a closer look at the rule’s requirements.

Overview of the Rule

Advance Fee Ban: The most significant consumer protection under the FTC’s new rule is the advance fee ban. Under this provision, mortgage relief companies may not collect any fees until they have provided consumers with a written offer from their lender or servicer that the consumer decides is acceptable and a written document from the lender or servicer describing the key changes to the mortgage that would result if the consumer accepts the offer.

The companies also must remind consumers of their right to reject the offer without any charge.

The Rule requires mortgage relief companies to disclose key information to consumers to protect them from being misled and to help them make better informed purchasing decisions. In their advertising and in communications directed at individual consumers (such as telemarketing calls), the companies must disclose that:

• they are not associated with the government, and their services have not been approved by the government or the consumer’s lender;
• the lender may not agree to change the consumer’s loan; and
• if companies tell consumers to stop paying their mortgage, they must also tell them that they could lose their home and damage their credit rating.

Companies also must explain in their communications to consumers that they can stop doing business with the company at any time, can accept or reject any offer the company obtains from the lender or servicer, and, if they reject the offer, they don’t have to pay the company’s fee. The companies also must disclose the amount of the fee.

Prohibited Claims: The MARS Rule prohibits mortgage relief companies from making any false or misleading claims about their services, including claims about:

• the likelihood of consumers getting the results they seek;
• the company’s affiliation with government or private entities;
• the consumer’s payment and other mortgage obligations;
• the company’s refund and cancellation policies;
• whether the company has performed the services it promised;
• whether the company will provide legal representation to consumers;
• the availability or cost of any alternative to for-profit mortgage assistance relief services;
• the amount of money a consumer will save by using their services; or
• the cost of the services.

In addition, the rule bars mortgage relief companies from telling consumers to stop communicating with their lenders or servicers. Companies also must have reliable evidence to back up any claims they make about the benefits, performance, or effectiveness of the services they provide.

Compliance

Todd J Sullivan J.D. on January 13, 2011 stated new MARS rule does not apply to real estate brokers who provide only real estate brokerage services to their clients (e.g. listing, showing, negotiating the transaction with the buyer) and who do not attempt to negotiate or otherwise provide services related to obtaining lender approval of a short sale.

Although the intent of the rule is to avoid including real estate brokers and agents handling sales of real property in the definition of MARS, from the language contained in the Supplementary Information in the Federal Register, it is clear that real estate agents and brokers handling short sales, title re-conveyance or any other sale or endeavor undertaken in an effort to stop a foreclosure sale would be covered by the MARS definition:

Under FTC Section 322.2 DEFINITIONS (i) ”Mortgage Assistance Relief Service” means any service, plan, or program, offered or provided to the consumer in exchange for consideration that is represented, expressly or by implication, to assist or attempt to assist the consumer with any of the following: and followed by subsection (6) Negotiating, obtaining or arranging:

(i)    A short sale of a dwelling,
(ii)   A deed-in-lieu of foreclosure, or
(iii)  Any other disposition of a dwelling other than a sale to a third party who is not the dwelling loan holder.

If so, that Realtor is a MARS provider and must comply with all the statutory requirements under the FTC Final Rule.

Remember, while typical real estate brokerage services are not classified as a provider under the new MARS rule, you cannot use the real estate brokerage services as a shield to compliance with the new rule if you are legitimately engaged as a Short Sale Negotiator.

Marketing and Representation Disclosures

Short Sale Negotiators must now provide significant disclosures in any and all commercial communications issued to homeowners:

(1) “(Name of company) is not associated with the government, and our service is not approved by the government or your lender.”

(2) “Even if you accept this offer and use our service, your lender may not agree to change your loan.”

In Addition, the negotiator must refrain from:

• Representing in connection with the advertising, marketing, promotion, offering for sale, sale, or performance of the short sale negotiation service, that a consumer cannot or should NOT contact or communicate with his or her lender or servicer;
• Making a representation about the benefits, performance, or efficacy of any short sale negotiations service unless, at the time such representation is made, the provider possesses and relies upon competent and reliable evidence that substantiates that the representation is true.

Fees Assessed to the Seller:

When making any commercial communications directed at a specific consumer, the disclosures must also include the following:

“You may stop doing business with us at any time. You may accept or reject the offer of mortgage assistance we obtain from your lender [or servicer]. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us (insert amount or method for calculating the amount) for our services.”

For the purposes of this disclosure, the amount the consumer has to pay consists of the total amount the consumer must pay to purchase, receive and use all of the mortgage assistance relief services that are the subject of the sales offer, including, but not limited to; all fees and charges.

• May not request or receive payment of any upfront fees or other consideration until the consumer has executed a written agreement with their lender or servicer incorporating the offer of mortgage assistance relief the Short Sale Negotiator obtained;
• Must disclose, at the time the Short Sale Negotiator furnishes the consumer with the proposed written agreement with their lender or servicer (e.g. the short sale approval letter), the following information:

“This is an offer of mortgage assistance we obtained from your lender [or servicer]. You may accept or reject the offer. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us [same amount as previously disclosed] for our services.” “

Many Short Sale Negotiators attempt to get paid by the listing broker. Even if that is the case, a disclosure of that fee must be made.

Conclusion

While the National Association of Realtors has yet to come out with its position on this ruling, the message from the attorney’s positions are very clear:

• Provide Full Disclosure and Transparency;
• Avoid any exaggerate marketing promises;
• Avoid any fees from the homeowner.

As a 3rd party negotiator and a realty/investment entity providing foreclosure relief services, Trademark is taking a conservative approach to this rule.  This is to ensure we are in compliance as well as for the protection of our client base.  While we have been disclosing similar language to the parties involved in our transactions for years, we are updating the disclosure language in our marketing and communication to the homeowner.  In addition, we do not, nor do we intend to charge any fees to the homeowner.

For additional questions or followup, please contact jim@trademarklossmitigation.com

This is a five part series to discuss, in detail, the various options the typical homeowner has when facing a foreclosure on their home.

When the American Dream Has Turned Into a Nightmare.

Owning a home is a big part of the American dream. It is a place where you can put down roots, raise a family, and create a lifetime of memories.  But in today’s difficult economy, homeowners face more challenges than ever before. It is not only more difficult to finance a home, it is rapidly becoming more difficult to keep up with payments and stay in your home.

More and more homeowners from every income level now realize that their dream has turned into a nightmare. Mounting debt, job losses, falling home values, and other widespread economic factors have combined to create a no-win situation. And most people have no idea where to turn for help.  Even the most educated have little idea on their options to avoid foreclosure.

In this Series Entitle: Options To Avoid Foreclosure, we will take a look at why foreclosure is a growing problem in America and what many of your options are to avoid losing your home and credit. And we will show you what the Federal government has done to pave the way for a new program that may enable you to get out from under your mortgage debt and rescue your credit rating.

Why Are More and More Homes Foreclosing?

For years, most people assumed that foreclosure only happened to the “other guy.” And in truth, foreclosure was a rare problem.

Today, foreclosure is happening to people at every economic level. In fact, many middle class families, who otherwise pay their bills and manage their money carefully, are shocked to discover that they may be forced to go through foreclosure and lose their good credit rating.

While it is true that a few homeowners have taken on more home than they can afford, in most cases, the struggling economy has created the problem.

For one thing, American jobs have been going overseas for many years. Cheap labor in other countries encourages U.S. companies to export their work force, including management and middle management positions. Layoffs, forced retirements, and salary cutbacks can play havoc with your budget and turn a previously affordable home into a financial liability. If you are a two-earner family, you can be devastated when one person loses a job.

Another problem is that if you financed your home with an adjustable rate mortgage (ARM), you may now be watching your loan rate rise, along with your monthly payment. You may not have expected to stay in your home long enough for this to be a problem, but since the housing market has slowed and buyers are hard to find, you are stuck with high mortgage payments you cannot afford.

Then there are unfortunate situations, such as divorce or injuries on the job which often create financial hardship. In the case of an injury, you could be out of work for weeks or months with little or no pay.

To make matters worse, lenders seldom have programs in place to help their customers. They may have gladly collected a fortune in interest, but when you miss just a few payments, they will begin the foreclosure process without hesitation.  This leaves the homeowner with little understanding of their options to avoid foreclosure.

This is the 1st of a five (5) post series on Options To Avoid Foreclosure.  For more information, please refer to the following sequence of articles:

If you are at least 30 days behind on your mortgage payments, call your local Short Sale Agent or Short Sale Specialist as soon as possible. The sooner you call, the more options to avoid foreclosure you will have available to you. Every day that passes makes it less likely that you will be able to avoid foreclosure and rescue your credit rating.

Get Your Short Sale Questions Answered Here!

Get your short sale questions answered by our team of real estate agents, negotiators, attorneys, mortgage brokers, title companies and more.

Just add a comment to the post, and we will answer your questions usually within 24 hours or less.  RSS feed your question to get an immediate notification when it is answered.

The Trademark Team

The Home Affordable Foreclosure Alternatives Program 2011 Update

On December 28, 2010, the Treasury Department released another update to the Home Affordable Foreclosure Alternatives Program (HAFA). Not surprisingly, the Treasury Department was under the gun as a result of the program’s poor overall performance.  According to the Congressional Oversight Panel (the Troubled Asset Relief Program watchdog) through 2010, only $4.3 million  has been used for HAFA resulting in roughly 661 closed HAFA short sales since the program launched.

The changes will increase the number of eligible borrowers who may participate in the program and should expedite approvals.  Servicers must implement the changes by February 1, 2011.

The Key changes are:

1. A borrower’s reason for relocation no longer needs to be connected to employment nor be of a certain distance from the property. Borrowers may have moved up to 12 months before certain dates in the HAFA process but may not have purchased another home.  Vacant or rented properties will no longer be disqualified from HAFA so long as the property was the seller’s primary residence within the last 12 months.
2. Servicers are not required to determine if the borrower’s total monthly mortgage payment exceeds 31% of gross income. Borrowers will still be required to show a hardship.  However, investor may still require it.
3. Servicers are now required to communicate approval, disapproval, or a counter offer no later than 30 calendar days after receiving an (i) executed sales contract, (ii) Alternative Request for Approval of Short Sale, and (iii) a signed Hardship Affidavit.
4. If an unsolicited borrower requests HAFA, the servicer has 30 calendar days to determine the borrower’s eligibility and, if eligible, send the borrower the Short Sale Agreement.
5. Payouts to subordinate liens are no longer limited to 6% of the subordinate liens outstanding principal balance.  The Max aggregate payout is still capped at $6,000.  It is now up to the investor to determine their allowable %.
6. Real estate commission cannot be cut to less than 6%, even when pre-applying for the program.  This was a major negative previously.
7. The update also clarifies vendors of the servicer may not be paid from the real estate commission. Hooray for this change!  Many of you have dealt with AHMSI who was guilty of this where they outsourced their servicing and would make the Realtors pay the 1% to the company they outsourced to forcing the Realtors to accept 5% or sometimes less or they won’t approve the short sale.

So, will these changes improve HAFA?  Time will tell.  But with fewer than 700 approved short sales so far, these changes can only help!

Click here to download the updated Home Affordable Foreclosure Alternatives Program – Policy Update.

1.  The ethics/legality of the agent getting compensated for the short sale negotiations

2.  The use of and compensation for 3rd party short sale negotiators, particularly in requesting that the buyer pay the negotiating fee to the 3rd party.

Also of interest was a recent blog post where a seller supposedly sued the listing agent when his house foreclosed, claiming that the requirement of the buyer to pay a negotiation fee discouraged buyers from submitting a contract. In this case, the seller never saw an offer come to the table and the home went to foreclosure. Now the seller is blaming the listing agent saying that this fee kept buyers away from seeing his home and placing an offer.Not being an attorney and therefor, not one to offer any legal advice, I would like to refer to a detailed article written by an attorney I retain.  Suggested solutions from the article addressing the above topics are outlined below.  However, the reader is advised to read the entire article that can be found at Short Sales Negotiations – A legal Perspective of Compensation

The following are excerpts from Ron Ballard’s White Paper Entitled: Tuesday, October 5th, 2010 Short Sales Negotiations – A Navigable Quagmire of Agency, Duty and Compensation:

Posted by Ron Ballard

A listing agent is paid compensation for a sale that closes, typically in the form of a “commission,” which is a percentage of the purchase price. A commission is ordinarily a form of contingent compensation for procuring a buyer who is ready, willing and able to purchase the property.

The common 6% “full retail” commission historically does not include the hours and hours that is typically involved to ascertain the short payoff amount(s), if any. Moreover, the skills and knowledge needed to effectively process and “negotiate” short sale payoffs have not been part of traditional real estate training nor part of the licensing examination process. How then could they be considered as part of a listing agent’s “duty” and be folded into a normal commission? The Update doesn’t say.

The DRE position is that “negotiations” must be conducted by a licensee in order for “compensation” to be legally paid. But “compensation” is not synonymous with “commission.” A short sale processing fee for the many extra hours involved in ascertaining acceptable discount(s) is a reasonable addition for someone to be paid for lots of extra work. Unfortunately, the input I receive from short sale processors is that the discounting lenders are less frequently approving a processing fee on the seller’s side of the HUD. This leaves the buyer’s side as an area to explore.

Regardless of improvements shortening the time for short sale processing at some banks, licensees and investors continue to report short sale processing times of four to six months as common, with an occasional 4 to 6 week surprise here and there (plus 9 to 12 month deals on the long side). Certainly the buyer is interested in the efficiency and effectiveness of the short sale processor. The DRE Update seems to erroneously assume that only the seller is interested and affected. Since both the seller and the buyer are interested parties, the designation of the short sale processor and the method of compensation properly falls into the realm of negotiation.

As one likely is sensing, the roles, duties and methods of compensation involved in settling short sale payoffs has virtually unlimited size, shapes, colors and flavors. The necessity is for appropriate definition, disclosure and consent – just the kind of complexity lawyers love because it can create a lot of work.

Problem: The MLS remarks or a pre-sale instruction sheet state that the buyer must agree in advance to pay the SSN’s fee if they intend to present an offer. Offers will not be presented without this. DRE states this is a problem if “the requirement for the Buyer to pay the SSN is being driven by the Listing Agent and/or the SSN, and is really not a requirement of the Seller . . .” This could stifle and limit the presentation of legitimate offers.

Solution: I agree that this is a problem IF the seller does not know about the remarks or term sheet or have an understanding of what is going on.

Different approaches can be taken to solve this and they all begin with seller education by the listing agent. The listing agent should have a written discussion of the seller’s options in this respect and a signed consent approving the approach that will be taken. If the seller chooses the approach discussed in the Update with the understanding that it might limit offers and might not be approved by the bank(s), then the seller is entitled to make that choice.

Proper documentation is key, including whether the SSN is connected with the listing agent (or is the listing agent) and how compensation will be handled. If I were advising the seller, I would want the listing agent to keep the “Buyer pays” approach as preferred but negotiable. The seller can always include these kinds of terms in a counter-offer and engage in active negotiations regarding them.

Problem: The buyer is told that he or she “must” request a credit for nonrecurring closing costs (“NRCC”), typically 3%, and apply that to pay the SSN fee, and possibly junior lien holders. The NRCC may be shown on the HUD1 but might be paid outside of escrow if not approved by the Lender.

Solution: A short sale package must include a projected HUD1. These likely change through the course of the process. The NRCC and it’s application should simply be shown early enough in the process for proper disclosure to the lien holder which provides sufficient time to object or acquiesce. The payment must then be handled according to the approval or rejection.

Problem: Although the SSN Addendum is a contract document, it is alleged that some SSN’s don’t send it to the Seller’s Lender in order to conceal this information. Intentional concealment of a material contract issue may constitute fraud.

Solution: First, the SSN Addendum is a separate addendum because the issues are not covered in standard forms; hence, an addendum is physically and practically necessary. There is nothing nefarious about this. However, the concealment is likely improper because the terms would likely be considered as “material” to the transaction. It simply needs to be sent in to the lender as part of the initial short sale package and “concealment” is avoided.

Problem: Buyers may be asked to pay off the seller’s credit cards debt, the seller’s moving expenses, to buy the seller’s furniture at an inflated price, and to otherwise provide funds for the direct benefit of the seller. These are problematic if not approved by the seller’s lender.

Solution: Generally, I agree. The short payoff letters always state that the seller cannot receive additional compensation or any of the sales proceeds. I agree that the buyer must not pay “an inflated price” for seller’s furniture. However, there should be nothing wrong with actually buying personal property at true “moving sale” prices. This is not disguised sale proceeds when it is comparable to what the sellers are otherwise receiving from an actual moving sale.

Problem: Including the SSN fee on a HUD1 is “arguably not sufficient to qualify as a realistic, timely disclosure” to seller’s lender that such a payment will be made and may violate the amount of commission approved by the lender.

Solution: First, I disagree with DRE’s characterization of any kind of short sale processing or negotiation fee as a “commission.” As stated above, “commission” is for procuring the sale and should be properly identified as commission on the appropriate lines of the HUD1. The short sale processing fee is for additional services and should be properly identified as such.

This is particularly true when short sale processing or negotiations is provided by a third brokerage, an attorney, or a limited scope of duty (clerical/administrative) third party processor. There is no basis for considering these services as “commission.” They were not part of procuring the buyer. Secondly, the feedback I receive is that banks closely review HUD1 forms. They often identify negotiation fees and reject them. The “final” HUD must be approved by the bank prior to closing and must agree with the negotiating HUDs. Hence, it’s unlikely that anyone is “slipping a fast one” by the bank. If there is an impropriety as cited in the Update, then the resulting consequences are appropriate.

This all goes back to the principles I, and other attorneys I collaborate with such as Jeff Watson, have been advocating since 2008 (probably earlier for Jeff): properly and timely disclose the relevant facts of the transaction to the appropriate participants. Education, disclosure and consent typically overcome the issues raised in the various releases we see from numerous entities in this niche.

Problem: “The SSN Addenda may contain provisions which purport to establish that the SSN (who is negotiating with the Seller’s Lender on behalf of the Seller) is also representing the interests of the Buyer in order to support the rationale given as to why the Buyer is to pay the SSN fee.” This may create issues of unclear agency duties or of insufficiently disclosed dual agency.

Solution: Once again: the standard agency documentation is inadequate for any kind of short sale in my opinion. It was not designed for short sales. I have master forms for my clients which can state that the short sale negotiator or processor is working on behalf of the buyer and not the seller. The seller is advised to seek independent counsel to analyze the resulting outcome. Sometimes the buyer insists upon being the negotiator and is highly experienced in doing so. I cannot emphasize enough the inapplicability (and the lack of existence) of a cookie-cutter approach to handling the roles and compensation for loan payoff discounts. All of the roles need to be properly defined and acknowledged in customized documents. Since both the seller and buyer are interested in the outcome of the short sale processing, the SSN should have a communication system that can keep both of them up to date. Many online processing services provide this feature.

Problem: The lender’s documents might require a seller and/or buyer to certify that the transaction is made at fair market value (FMV) but the listing agents may orally emphasize the payment of “less than FMV as part of a scheme to induce the Buyer to want to pay the SSN fee.”

Solution: The FMV certification will be the topic of an entire article. For now, suffice it to say that, by definition, it is impossible for a short sale to take place at fair market value. The definition of fair market value requires that neither buyer nor seller be under any duress to sell and that unlimited marketing time be available. To the contrary, short sales are distress sales with the seller under pressure to sell. Any lender asking for a FMV certification is asking the impossible and they should know that (as should DRE).

Problems: The Update goes on to discuss further scenarios that involve lack of disclosure, or of consent, or of negotiation between seller or buyer, or settlement payments outside of escrow, or of redirection of funds differently than approved on the HUD-1.

Solutions: The DRE Update generally seems to assume that the respective roles have not been defined, the terms have not been disclosed, and the seller and buyer don’t know what’s going on so they can’t give consent. If any one of these participants were my clients, I wouldn’t want them involved in transactions like that. The solution, though, is simple. Although the verbiage might be extensive, pretty much all of the issues can be resolved by relevant disclosures up front, with consent from buyer and seller, and relevant information provided to the lender(s).

The [DRE] Update often treats a negotiation or processing fee as a “junk fee” that doesn’t provide real value to a buyer. To the contrary, I have clients who are buyers who negotiate strongly with a seller to assure that the short sale processor or negotiator will be one they (the buyer) select and they offer to pay. This is because the role is critical for the buyer to have a successful deal. I welcome anyone who has “negotiated” a short sale to comment on this article that the process was so simple and quick that they would do it without compensation. No one “in the trenches” would even conceive of that. Compensation for short sale processing or negotiation is not a “junk fee.”

I have yet to see DRE warn consumers about the widespread fraud consistently perpetrated by the banks.

Real estate licensees, title companies, escrow companies, buyers and sellers are well-served by being made aware of the risks of fraud. However, the world of negative equity has created a new paradigm for which outdated and unprepared analysis do not work. There is a legal quagmire in short sale negotiations and processing that can be confusing. But regulators should not freeze markets or hinder transactions because of the mere risk of confusion. The confusion can be overcome by proper navigation through this quagmire with effectively negotiated and documented transactions. DRE would serve the public well by advising how transactions can be properly structured, not just vaguely pointing out risks without offering solutions other than inaction.

Related Posts:

1.  Short Sales Negotiations – A legal Perspective of Compensation

2.  Part I: An Attorney’s Perspective of Short Sale Flip, Flop or Hold – A Tale of Three Myths

REAL ESTATE STRATEGIES INSTITUTE, INC.

White Paper Study Regarding:

Freddie Mac: Fighting “Fraud” or “Crying Wolf”?

Current as of: September 29, 2010

Freddie Mac is once again lumping legitimate resale transactions in with the fraudulent ones in order to deflect accountability for its massive loan losses due to buying loans it had to know were bogus.  The Freddie Mac web site has a new article dated September 27, 2010 rehashing old issues. This time it’s titled “Fighting Back Against Mortgage Fraud” and has a real, named author in Ed Haldeman, the CEO of Freddie Mac.

I put my byline on and stand by all of my articles and published legal forms. I have good reason to believe that legal and investigatory people at Freddie read them. I’m glad someone at Freddie will finally take credit for the ludicrous statements in their latest article found at For one who is not a regular reader of my blog, one only has to look at my previous week’s article at a cause of lender’s losses (at least when using the type of disclosures and procedures that the leading investor-friendly attorneys in this niche business recommend). [An edited version of that blog article has also been released as a RESI White Paper. The reader may request a copy from the source who provided this White Paper.] I’d like to think that my exposee’ so ruffled Freddie’s feathers that they felt they had to give a high-powered, yet indirect response.

RESI White Papers and my blog articles are intended to encourage an active legal debate. When Freddie first woefully attempted to define “short payoff fraud” in April 2010 four attorneys took to the Internet to provide extensive legal arguments debunking the concept. One can find links to the webinars and insightful article at  http://bit.ly/3replays.  Budget some time: there’s more than 5 hours of substance-packed content there.

The final sentence to the blog post listing the replays was: “Let a LEGITIMATE debate begin!”   To date, no one has made a contrary comment on my blog nor has anyone in my extensive network of contacts sent me a link to any article that approaches this issue using any degree of specific, legal analysis.

“A real estate agent in Pennsylvania recruited an associate to act as the buyer on the short sale of a property backed by a Freddie Mac-owned loan, for a price of $160,000. Simultaneously, the agent was marketing the property for sale as if the associate was the owner, and found a buyer unaware of the actual sale price who was willing to pay $225,000. Both loans were scheduled to close the same day.”

“Our fraud investigators were tipped off about the plan and successfully stopped it. But had the deal gone through, the new owner would have paid more than an informed buyer probably would have, Freddie Mac would have been denied a legitimate recovery, and the real estate agent would have fraudulently netted a $65,000 profit at the taxpayers’ expense.”   [Emphasis added.]

Haldeman is quick to compliment Freddie Mac, but what did the fraud investigators “successfully” stop? Did they stop the $160,000 sale to which Freddie already agreed in open negotiations? Did they stop the $225,000 sale of the buyer “who was willing to pay” $225,000? Did they renegotiate the deal with either buyer? Did they let the $225,000 buyer close at that price but cut out the initial buyer who successfully negotiated a good deal? Just what did Freddie do? Who did it help? How? They don’t tell us.More importantly, when did it become fraud in the United States market-based economic system to openly negotiate a good purchase price?

Note that there is no statement that the short sale processor or “negotiator” in the transaction provided any false information to Freddie Mac or the loan servicer. Nor is there any discussion that typical short sale processing involves the lender’s loss mitigation department conducting their own market due diligence. I refer the reader back to http://bit.ly/3myths about all the omissions of reality this kind of “fraud” analysis conveniently overlook.

Here’s the highly disturbing part. The article states, “had the deal gone through, the new owner would have paid more than an informed buyer probably would have.”

Two paragraphs earlier, Freddie said the problem is with the lender “settling for less than what an informed buyer would pay for the property”? Now their self-congratulatory case study says the end buyer was going to pay more than an informed buyer. There’s an obvious disconnect.Does this mean that the first buyer at $160,000 was the informed buyer with the right price?

The “case study” does not hold water. It is like a leaking ship called U.S.S. [United States Subsidized] Freddie Mac. Note that the alleged $65,000 loss would have been “at the taxpayers’ expense.” Taxpayers, like you, now get to foot the bill rather than anyone in the lending cycle who made the risky loan nor in Freddie’s loan purchase decision in the first place.

The reader must be careful not to misinterpret these conclusions. The author agrees there mortgage fraud occurring in the market, including a small percentage of short sale flips. To Mr. Haldeman’s credit, his article provides a link to FBI mortgage fraud information. When one reads the examples the FBI has successfully and properly prosecuted, they do not resemble the Freddie Mac “case study” in any material respect. The link to the FBI web site is merely a deflection to add an air of legitimacy to a fallacious argument and poorly selected example. For the casual reader who won’t follow the link to the FBI, the mere reference can create a sense of fear of involvement in legitimate investordriven short sale transactions. To the serious reader who will read the FBI true life cases, one can learn about actual mortgage fraud.

When one looks at the dramatic declines in the number of home sales in July and August of 2010 vs. those of 2009, we see that the drop follows the assault on investordriven transactions by Freddie Mac and several large loan servicers. One who is active in the industry can reasonably guess that all of the “fraud” scares put out by Freddie Mac, various State real estate departments, and loan servicers have contributed to a chilling affect on the market. I look forward to finding data that shows this is a contributing reason why home sales are so depressed despite remarkably low interest rates.

Mr. Haldeman’s article ends with “Four Tips for Avoiding Mortgage Fraud.” I agree with all four tips. I think I know my legal colleagues to whom my blog articles often link well enough to guess that they would agree with them too.

Not surprisingly, Haldeman’s tips have nothing to do with the Case Study nor with properly structured and disclosed, investor-driven short sale resales.

Based on the input the author receives from investors and real estate licensees, most simple, single lien, short sales go through a usual retail sale. On the other hand, typical retail buyers and their agents have learned that properties with multiple liens and/or some additional property or title defects are difficult to complete. That’s where investors come in. They clear difficult title problems and often correct problem property characteristics by “rehabbing” properties. Both sets of actions, when successful, result in a higher final price for the property than would have been obtained without the investor’s involvement.

Bottom line: legitimate investors add liquidity to the market by purchasing the more difficult properties and add value to the market by converting distress market assets to cleanly titled and freshly rehabbed properties which are sold at higher values.

Rather than acknowledging the important contribution of real estate investors to the economy, Freddie Mac’s CEO disingenuously cries “fraud.” Those who understand the law, as well as market and investor behavior, see it more like crying “wolf.”

This White Paper was written by California real estate attorney Ronald M. Ballard on behalf of Real Estate Strategies Institute, Inc. (RESI) www.theresi.com. Mr. Ballard earned his law degree from UCLA and was admitted to practice in California in 1983, where he has activelypracticed continually. He represents many real estate licensees and investors who seek to pursue fully legally compliant real estate and short sale investing strategies. He is not paid by any seminar or training company other than RESI, but directly by active, independent real estate businesses. Mr. Ballard publishes online at www.CaliforniaShortSaleLawyer.com . More information about the author is available at www.ballardlaw.com

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Published by and © 2010: Real Estate Strategies Institute, Inc. (RESI), 22996 El Toro Road, Lake Forest, CA, 92630. All Rights Reserved. For distribution by RESI subscribers only.

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You may also enjoy two other articles by Ron Ballard:

Short Sales Negotiations – A legal Perspective of Compensation

Short Sale Flip, Flop or Hold – A Legal Perspective