It is interesting how the learning curve in real estate truly reflects who is doing the business. It amazes me how every day I am coaching and advising real estate agents on how to handle a short sale or REO sale. I catch myself saying, "how is it that this agent or the agent on the other side of the transaction is not aware of how to handle these situations?" After all, haven't we covered this in numerous sales meetings? Don't they read the company attorney's blog? Listen to the CEO's conference calls? Did they catch what the GLVAR published on the subject of short sales, foreclosures and REO listings - Download stopreadthis.pdf ? Don't they stay on top of what's happening in the real estate market and seek out the knowledge?
Then, I remember it's just the nature of the business - it really is the 90/10 rule. Ten percent of the agent population is conducting the majority of the business. And daily, I am happily educating agents who are dealing with REOs, short sales, foreclosures for the first time! The good news, business is picking up and more of the 90% are actively engaging in the business - at least that's what I'm experiencing in my real estate office of 250+ licensees.
In an effort to continue to educate the masses - or those who might be interested - I want to share some recent short sales situations and our best (collective) advice for Nevada licensees. First of all, I direct you to this previous post on Short Sale Tips for Real Estate Agents and Sellers. In this post I refer you to more great blog resources on short sales, REOs and foreclosures from the legal blog of Prudential Americana Group's in-house attorney, Darren Welsh and our CEO, Mark Stark.
Fellow real estate trainer Steve Kitnick of NevadaCE.com made a couple of great comments on this post. I share this one with you and add to it:
"Is it in your client's best interest to open escrow immediately following an accepted offer that is contingent upon the Seller's lienholders approval to the Seller's satisfaction? If not, try this Short Sale Contract Clause - "Upon Seller receiving written notification of their lienholder(s) approval of the short sale to the Seller's satisfaction, Seller or their authorized agent shall provide Buyer or Buyer's authorized agent written notification of said approval within ___ business day(s). Escrow shall then be opened within ____ business day(s) upon Buyer or Buyer's authorized agent receiving said notice."
The first question "When do I open escrow?" Some possible answers:
- Consider Steve's comment above and open escrow after lenders approval. Problem - what do you do with the earnest money in the mean time? Nevada Revised Statutes state earnest money must be deposited into the broker's trust account or escrow within one business day of accepted offer. And do you have an accepted offer when the buyer and seller agree on all terms with the offer contingent upon lenders approval? All parties could agree to a lesser EM amount, open the escrow and deposit the remainder upon lender's approval.
- The latest GLVAR Short Sale Addendum to Purchase Agreement
The next question... "How do you handle multiple offers when you are the listing agent?"
- As the listing agent, it is recommended that you review all offers with the seller. The seller can accept or counter the best offer. Alternatively, you could use a multiple counteroffer form with all acceptable offers which also serves as notification of multiple offer status. The seller counters all offers, gets back signed counter offers from respective buyers, re-signs the best offer and presents this offer to the lender for approval. In this case, all other offers can choose to stay in a backup offer status or move on to another property. The offer is still contingent upon the lenders approval. This is the recommended protocol according to NVAR attorney Sue Saunders.
- I've also seen transactions recently where the listing agent is not having the seller accept or even counter the offer (s) and forwarding all offers to the lender for approval of the best one. The problem here is that you don't actually have an accepted offer. Remember, the lender in a short sale is not the party that will be executing the contracts. The offer is simply contingent on the lender accepting the terms and agreeing to accept less than what is owed by the borrower. A listing agent doing this may also be trying to circumvent the GLVAR requirement to place the listing in "C" (Contingent) status thus encouraging other offers on the property. This practice may be deemed more beneficial to the seller as it encourages multiple offers thus a better chance of receiving an offer the lender may approve. For the buyer, this is a weaker position and they must make the decision to wait and see what happens or move on.
- Still other listing agents are countering the multiple offers and submitting them all to the lender. In this case you also use a multiple counter offer, buyer(s) accept the terms of the counteroffer, then all accepted counteroffers are sent to the lender for an approval of one. Only after the Seller reconfirms (signs) the acceptable offer to the bank do you have a binding purchase agreement.
One more question... "When does the due diligence period start?" Again I refer you to the GLVAR short sale addendum which offers choices:
- Due diligence is per the purchase agreement which I interpret to mean as soon as the seller signs the contract.
- Due diligence period begins one calendar day after buyer is notified of the lenders approval of the transaction ( best choice if you are representing the buyer).
- Other - agree on something else.
Resources from NVAR General Counsel, Sue Saunders:
Short Sale Tips Dealing with the Lender - Download ShortSaleTips.pdf
Short Sales and Foreclosures, How They Work - Download ForeclosuresandShortSales.pdf
Short Sale Resource Guide -Download FORECLOSUREBooklet.pdf
Best practice tips:
- Licensees must deal fair and honestly with all parties to the transaction.
- Open communication and putting everything in writing is a must. Use the proper addenda/contracts and disclose what is happening in the transaction.
- Buyers and sellers can mutually agree to almost anything but make sure you are following respective NRS/NAC statutes and code. Remember it's your license on the line here.
- If you are going to be successful in this market, you will probably be dealing with REOs and short sales. Make sure you are educating your buyer or seller on the process, what to expect and the fact that it may take the lender/bank weeks or even months to give you an answer.
- And it goes without saying...Educate yourself... by the way... We Can Help!!
What other scenarios have you encountered? Do you have more questions and possible solutions to share?