Loss Mit Services

The Short Sale “BPO” Quandary!

Posted on 16. Feb, 2011 by ctlms in Foreclosures, My Blog, News, Real Estate, Short Sale, foreclosure

With every short sale there is a BPO or appraisal.

These 2 "opinions" of value are not created equal.

So what is a BPO?

BPO stands for Broker's Price Opinion.  It is much like a CMA (Comparative Market Analysis) that an agent would do to help a seller determine their list price.

However, a BPO is done on the lender's own form and the lender dictates how it is done.  Unlike an appraisal that is done to specific standards that all appraisers must follow.

BPO requirements can often dictate that the agent must use certain kinds of comps, can't use other kinds of comps, and can or cannot make certain adjustments.  These limitations often can cause the value estimate to not match what a real world buyer is actually willing to pay for the property.

So why do lenders do BPOs instead of appraisals?

Easy....Money.  BPOs are less expensive to order and the lender can make the above mentioned restrictions on how the value is derived.

FHA and VA loans must order FHA and VA certified appraisals and cannot order BPOs.

But most other short sales end up with a BPO and not an appraisal.

Whether it be a BPO or appraisal, the value typically goes through some sort of audit when it gets to the lender.  This entails the comparison of that report with a desktop valuation and possibly a review of online comps.  Obviously this is done by someone that has not seen the property in person.  This process can also result in an inflated value.

So what can we do to avoid these inflated values killing our short sales?

The BPO is the most important part of the short sale.  We can do everything else 100% to the best it can be done and the BPO can still kill it.

So what do we do?

Firstly, the BPO agent cannot be allowed to just go to the property alone with no contact from the listing agent.  Who knows more about this property than the listing agent?  No one!

There are certain pieces of information that we want to make sure the BPO agent has access to to make their job easier and to make sure the take them into account.

1. The offer

2. The listing history

3. Relevant comps

4. Repairs

5. Showing feedback

We want the BPO agent to know that the property is a short sale.  They may think it is an REO.

We want them to see what prices the property did not already sell at.  If the property has already been on the open market and on the MLS at a price and did not bring offers, then the buyers out there today are not willing to pay that price for it.  And what is market value anyway?  It is what a ready, willing and able buyer is willing to pay.  So this should be the most important information available as to what the current market value is NOT.  Of course, not everyone agrees with me on that point.

We also want the BPO agent to know what the current offer is.  If the property was marketed for say. $100k then $90k and then $80k before getting an offer of $75k, wouldn't you think the current value is probably somewhere between $80-75k?  If it were more then why no offers before now?

It is a good idea to do your own comp research and supply that to the agent as well.  For all you know that agent is doing 10 BPOs today and has very little time to research comps.  Make sure they have as much info and have to do as little work on their own, in case they don't have time to do it.  Don't assume that someone else will care as much about this deal and your clients as you do.

Repairs.  This is a tough one.  If there are issues with the house that will make its value different then the comps available, we need to know how much that is worth.  This can be the hardest part.  BPO agents and Realtors in general are not well trained on estimating repairs.  Often buyers are not willing to do the leg work to get repair estimates either.  So this can be a tough thing to estimate.  But at a minimum we want a list of what is wrong so the BPO agent knows about it.  This is another reason why having the home inspection done before submitting a short sale offer can be very helpful.  Supplying the BPO agent with the deficiencies found in the inspection is great information.

So what happens when we do this and the BPO still comes in way above all reasonable offers?

We use all of the above mentioned information, and more, to dispute the value with the lender. Make no mistake, this is much harder to do than if the value had come in accurate to begin with.  But it is our last shot at saving the deal.

Some lenders will accept a well put together market analysis with photos, comps and a market description done by the agent to dispute the value.  I have had some very well put together packages done by the listing agent shave thousands of dollars off the lenders opinion of value.  Other lenders will only consider the buyer's lender's appraisal.  This creates another challenge where the buyer, or someone, has to be willing to pay for the appraisal.  And the lender wants the buyer's lender's appraisal, not just some appraisal that the buyer paid for directly.  They want to know it was as unbiased as possible.

So what else can we do?

Aside from the above mentioned items, there is one other thing the listing agent can and should do when time allows.  That is to set a marketing history.

How to set a marketing history.  As mentioned above, we want as much ammunition as possible to justify the offer as being current market value.  One of those pieces of information is the marketing history of the property.

If the property was listed at a "fire sale" price and received a full price offer the very first week, what do you think the first thing is that the lender will think? "You could have gotten more money."

We want to e able to show with the marketing history that we were NOT able to get more money or a higher offer.

No my usual rule of thumb is to start the listing about 10% higher than where you think it needs to be to get an offer.  Give it 3-5 weeks then lower it half way to that price.  Give it another 2-3 weeks then lower into that range you believe it needs to be in to get an offer.  If after another 2 weeks there are still no offers, continue to lower it.  Now this is different depending on the price range.  Higher value properties typically don't need to start a full 10% high, but this is just a rule of thumb.

This strategy helps to establish that the property could not sell for a higher price and, if we are fortunate, the offer that comes in will be relatively close to the listing price at the time.  This is also important as most BPOs do not come in lower than the price the property is listed at at the time the BPO is done.

In conclusion, never underestimate the importance of the BPO or appraisal that is done for a short sale.  That one piece of the puzzle can make or break your chances of helping your client.

Sean Wilder

Good Changes Coming to HAFA

Posted on 06. Jan, 2011 by ctlms in Foreclosures, My Blog, News, Real Estate, Short Sale, foreclosure

There are some changes coming to the HAFA short sale program that will positively affect your clients

on Dec 28, 2010 Supplemental Directive 10-18 was issued by the Making Home Affordable program.

These changes take affect Feb 1, 2011.

Many of these changes address negative issues that have limited this program up until this point and have disqualified many sellers.

Key Changes coming;

1. 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. There will no longer be a requirement that the seller's current mortgage payment be greater than 31% of their current gross income.
3. HAFA no longer requires the sellers financials be reviewed for qualification.  However, the servicer or investor may still require it.
4. 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 %.
5. Real estate commission cannot be cut to less than 6%, even when pre-applying for the program.  This was a major negative previously.
6. Servicers are now required to respond to short sale requests within 30 days, whether the files was pre-applied for or not.  We'll see about this one.  They don't meet the timeline requirements now, so I don't see that changing.

In all these updates to the program should remove some roadblocks that have disqualified seller's in the past.

Unfortunately, not all of the negatives to pre-applying for HAFA prior to having a purchase contract have been removed.

1. Seller's may still be required to pay mortgage payments equal to 31% of their gross income during the marketing period after pre-applying.
2. Lender's doing their value determination when the property has not been marketed and there are no offers from the market often come in higher than future buyer offers do.  So pre-applying is still a gamble when it comes to the lender's determination of value and should it come in high, limited ammunition is available to dispute it.
3. An value that come in higher than the market is willing to pay can doom a seller to having to accept a deed-in-lieu of foreclosure.  Having a full marketing history and offer to show the BPO agent is always the best strategy to combat and unrealistic value.  Whenever possible this is my suggestion.

I believe these changes to the program will allow many more sellers to sell their properties via a HAFA short sale which will afford them a full release of liability on the loan when the house sells.  This will allow them to move on with their lives.

On caveat to this update.  This update is for non-GSE loans only.  So these changes are for non Fannie-Mae and Freddie Mac loans.  The 2 GSEs have their own versions of HAFA and their own guidelines.  We will have to wait and see if they implement these changes also.

Sean Wilder

The Ins and Outs of Bank of America and Equator

Posted on 02. Dec, 2010 by ctlms in Foreclosures, My Blog, News, Real Estate, Short Sale, foreclosure

Some Hate it and others Love it!

Anyone that has dealt with Bank of America this year during a short sale has heard of Equator.com.  In fact some other lenders such as GMAC us this online platform as well.  But Bank of America has fully incorporated this system into their short sale process.  Let's talk about the system and how to use it properly.

Some people I have talked to just Love Equator because it is more hands off and requires fewer phone calls and no faxing to the lenders.  Others Hate it for the same reasons.

I myself just use it to the best of my ability and try my best to avoid it's negatives.

Eqautor.com, formerly REOTrans.com is an online interface used by Bank of America and others to facilitate communication and document collection between the seller's representative and the bank.  The system was designed assuming that the seller's representative who would be communicating with the bank would be their real estate agent.  This created some challenges for anyone that was not a licensed real estate agent to negotiate the short sale, such as an attorney or short sale negotiator.  Recently they have added access for attorney's but there is still no clear way to get an account if you are not an attorney or licensed real estate agent.  Good thing I have that license also.  We have been using Equator since Feb. 2010.

The key feature that many people love about this system is that you can initiate a short sale without calling the bank or faxing anything in.  You just enter in some information about the loan and once the file is opened, you upload your 3rd Party Authorization form into the system to be reviewed.

Once that authorization is accepted, tasks are assigned to you to upload short sale documents and enter the offer information.  You will need to have already prepared an estimated HUD-1 for this and gathered the buyer's name and address along with the contact information for their agent and lender.

There are some fields that are asked for that we usually do not enter the correct information and have never had an issue.  The system asks for the buyers first 5 digits of their social security number.  This is none of their business to start with and that limited information is useless anyway so we just enter 000-00.  Same goes for their birth date.  Just pick a random date.  We also use the area code and 555-5555 for any of the requested phone numbers except that of the buyers lender.  The person processing the short sale on behalf of the seller should be the only point of contact for any requests for information or documentation from the lender.  This avoids delays and confusion down the line.

After the offer is fully submitted a value is ordered and after that value comes back to the lender a counter offer is usually issued.  This is common and is a way for them to see if the buyer will come up any.

After the counter offer phase, and if the offer meets the investor's (who owns the loan) minimum net proceeds the offer is submitted for approval.

If approved the file moves to a closing officer and the short sale approval is issued.

This all sounds pretty simple and straight forward but there are things that can totally blow up your transaction.  All the hype that  Bank of America has put behind this system has lulled many into forgetting that you actually need to know what you are doing.  If you let the lender guide you through the short sale the way THEY want you to do things, you may not be protecting your client fully.

Here are some tips.

1. If possible, use the services of someone who is very familiar with the system and the lender.
2. Fax your authorization into the lender before initiating the short sale on Equator.  Call to verify it is on file and make sure the loan is to be processed through Equator.  FHA and VA loans along with some HELOC loans do not go through Equator.
3. Call Short Sale Customer Support if you aren't getting updates through Equator or responses to requests for updates.
4. Be sure to have everything you will need for the short sale before you initiate on Equator.  Equator tasks have expiration dates and if you fail to complete them in time, the file will be closed automatically.
5. If you know what closing costs the lender never agrees to pay, you can save a lot of time with the offer-counter offer process.

These are just a few tips of the many ins and outs it takes to successfully navigate this system on a regular basis.

Equator can be a great tool for speeding up the short sale process if you know how to use to its best.  We have had short sales approved using it in as little as 3 weeks.  But I have seen many agents get completely frustrated and huge delays caused due to inexperience with the system and the knowledge to work around some of it's challenges.  This is especially true of "unique" transactions where the developers of the system could not have foreseen your issues.

Hope these tips help shed a little light on this system.

Sean Wilder

Owner, Loss Mit Services

Call us with your short sale needs 860-265-3727