C O A L I T I O N Corner Coalition Corner: Business training tools for HR staff, real estate licensees and other service professionals in the relocation and real estate industries Short Sales: Some of the Basics That Real Estate Professionals Should Know The Worldwide ERC ® Coalition thanks Linda Howard, SCRP, Prudential California/Nevada/Texas Realty and Teresa Rutledge Howe, SCRP, GMS, Coldwell Banker Southern California for this edition. © 2008, Worldwide ERC ® Coalition

C O A L I T I O N Corner Program objectives This program supplements an editorial feature in Worldwide ERC ® ’s Mobility magazine This segment will: –Examine the “short sale” process in the context of employee relocation, reviewing some basic tips for real estate licensees.

C O A L I T I O N Corner What are short sales? Numerous terms can be used to describe properties on which owners owe close to or more than what they are worth, through mortgages and/or home equity lines: “over-encumbered” “upside down” The resulting inability to cover the expenses of selling such properties can present the possibility of a short- sale scenario, posing unique challenges to the relocation industry.

C O A L I T I O N Corner Economic conditions, housing market changes and mortgage industry challenges are all leading to an increase in short-sale scenarios Individual circumstances will differ; success rates in negotiating short sales will vary States/regions and lenders all have their own individual requirements Tax/legal implications to consider (see “Short Sales: Some Taxing Issues Can Arise” edition of Coalition Corner) – clients should seek professional tax/legal advice Some of the facts…

C O A L I T I O N Corner In spite of variances, there are some “absolutes” to know… 1. Short-sale transactions take more time and involve more paperwork For example… A letter of authorization/permission may be required from client’s lender for anyone to negotiate on his/her behalf Several phone calls will likely be required to locate the person with the authority to negotiate (often in the loss mitigation department) While lender and state requirements vary, additional disclosure and financial data documentation is likely to be required

C O A L I T I O N Corner In spite of variances, there are some “absolutes” to know… 2. Persuasion and patience are necessary Need to demonstrate that a short sale (or other type of debt negotiation) is more attractive, less time consuming and ultimately potentially more cost effective than the alternative of foreclosure and its resulting fees, delays, legal requirements and property risks.

C O A L I T I O N Corner In spite of variances, there are some “absolutes” to know… 3. Preparation is key Determine how much money is needed to meet all of the seller’s obligations (including brokerage commissions, any taxes due or other closing costs). Examine title and deed and research the possibility of any liens (including IRS and penalty payments), judgments, late payments or default notices in connection with the property. Keep in mind the situation is embarrassing/stressful for seller; but the more information that is voluntarily shared up-front, the easier the process will be. Determine what the lender’s requirements will be, and be ready to communicate/disclose all necessary information throughout the process.

C O A L I T I O N Corner In spite of variances, there are some “absolutes” to know… 3. Preparation is key Borrower/seller will need to prove an inability to afford full payoff amount, and the absence of any other income/assets to repay the loan. Be able to provider lenders with very specific, credible documentation about seller’s financial circumstances and the value of the property. Substantiate lender’s own evaluation process with neighborhood facts, information on local economic conditions, less favorable offers (if applicable) and bids for any necessary repairs. Know that contracts may often require a preliminary HUD-1 settlement statement, indicating that the “net cash” to the seller is in the exact amount of the short sale payoff.

C O A L I T I O N Corner In conclusion… 4. Be prepared for possible rejection Lenders may counter-offer, or reject offers outright, particularly if appraisals come in high. If property is not in need of repair, it may be difficult to convince a lender that it is worth less than its appraised value.

C O A L I T I O N Corner Short-sale scenarios may present opportunities for listing agents familiar with the process to obtain listings, earn commissions and help save a client’s credit. Buying agents may be able to find good value for their clients and expand the selection of properties available. Worldwide ERC ® resources can help: –Coalition Corner (free)Coalition Corner –Tax & Legal MasterSource (annual subscription)Tax & Legal MasterSource Not All the News is Negative