The Invisible Client (The Bank)

Here is an interesing article

It’s a Different World...
In the good ole days, five years ago, when a seller called and said they wanted to list their home there was instant cause for celebration. You list, you market, everyone goes to a closing in a couple of months and you CLOSED. That was then and this is now. The terrain has changed with the increased number of consumers who are default adding a new ‘twilight dimension” to the listing process by the subtle introduction of Mr. “Invisible” bank man as a 5th wheel to the listing party.

Seller’s Rights
The owner of any property has the right to offer their home for sale—at any time they wish—even when they are behind on the mortgage. The equation gets tricky if there is a shortage between what a buyer is willing to pay in the current market and the outstanding balance owed to clear the title. The lender(s) has no authority to block the listing BUT they are under no obligation to accept less than full pay-off of the outstanding balance; hence the dilemma of the short sale. Without lender acceptance of the proposed “shortage,” there will be no closing. Enter . . .

Mr. “Invisible” Bank Man
While he’s “invisible” and not even a party to the contract, he carries a very BIG stick. In cases where the property sale will garner less in an offer than the mortgage pay-off plus necessary expenses (commonly called a short sale) the loudest mouth in the building belongs to the “invisible” partner. It is a wise practice to recognize the existence of this partner in the listing contract, ie. “sale may be subject to lender approval.” Throughout the transaction you and Mr./ Mrs. Homeowner must pay the highest degree of respect to the wishes of the “invisible” partner. The success of a short sale is dependent upon how successful the rest of the team interacts with this team member. Failure to understand this basic concept with likely guarantee a disastrous outcome.

What options does he have?
Let’s consider the options available to the 5th wheel when a borrower falls into default.

They may agree to a workout option for retention if the borrower has funds sufficient to support some kind of payment plan.

If there are insufficient funds for making payments, they may agree to a short payoff—if they have determined the proposed sale to be an arm’s length transaction, with no extraneous payments to the buyer, probably with a requirement of reduced commission to be paid and they have satisfied themselves, the offer represents realistic current value.

hey may agree to accept a deed-in-lieu of foreclosure to save themselves some time, expense, and trouble, while reserving the right to pursue the unsuspecting seller for any shortage at a later time.

They may decide---at any point—to move forward and complete the foreclosure process.

Placating on Pricing
Pricing can be tricky and the devil is in the details. If you price it too high you run the risk of guaranteeing no showings and consequentially, no offers. Price it at or below market and you’ll get an offer---maybe multiple offers---but the “invisible” partner is almost certain to reject any offer under these circumstances as “not being reflective of the true value of the collateral.” So you—Short Sale Agent Extraordinaire---must strike a reasonable balance between what is low enough to generate showings and a possible offer but high enough to stave off any claim of “attempting to give away the bank’s house.” Delicate strategy but one which is taught as part of the two day “Short Sale—Not Your Typical Transaction” class and/or Level I of the FIS certification program. No attempt at being cagey but this is already going to be a long article and that is not a concept I can squeeze in here.

Fifth Wheel Dictatorship
When it comes to counters and price reductions, it would be a serious mistake to overlook the opinion of the “5th wheel.” After all, it is his net balance which you are proposing to reduce so he demands the courtesy of input. Wise agents respect this as an important right and never do price reductions without getting prior approval, in writing, from this unorthodox client. Likewise, it is unwise to allow Mr./ Mrs. Homeowner to sign any counter offer which has not received written authorization from the lender. And no, putting in “subject to lender approval” in the counter and then letting your listing couple sign BEFORE the lender gives approval is never a good idea.

My, How Time Flies
Unlike traditional transactions where the offer is presented to your sellers who make a decision and sign off on it, your primary clients (they’re the visible ones) must wait for a response from the “invisible” one. He usually takes a long time since he may need to consult with the MI company, order and review an appraisal & a BPO, look at title work plus a few other things he forgot to mention to anybody---ALL before he can make a decision. This is further complicated by the fact that apparently all the “invisible” bank people are incredibly busy these days. Nonetheless, you dare not move forward without his express, written permission.

Now About That Commission. . . .
REALTORS and real estate boards across the country are up in arms because they feel the lenders are unfairly sticking their noses in the commission aspect of real estate. Mind you, we are not talking about all transactions—only short sale transactions. But, depending on what part of the country you’re in that could be 35-45% of THE market or perhaps as much as 85-90% of YOUR business. Not only are lenders insisting on sticking their nose in, they are obstinate enough to say “this is ALL we will allow for commissions.” Dot. Period. End of discussion.

I Beg Your Pardon
The “invisible” partner did not sign a listing contract, therefore, there is not a contract for services rendered on his behalf. I am sad to report that most REALTORS and many boards are reluctant to acknowledge the harsh reality that they have only the signature of Mr./ Mrs. Seller on the company contract. Mr. “Invisible” bank man:

DID NOT sign a listing contract
DID NOT agree to pay any commission amount
DOES NOT care what Mr./ Mrs. Seller owe you

Nor, I am afraid, do they care what is the local custom. They have a business to run and right now things are tight. Mr. & Mrs. Seller are in default and foreclosure is imminent. From their prospective “you real estate people should have understood the short sale game.”

Take the Bitter W/ the Sweet
You can build a profitable business at a commission level LESS than the current acceptable standard—STOP YELLING AT ME—provided you:

Stop giving away more of the commission than you keep
Stop taking listings which don’t have a snowball’s chance in Florida
Learn when to get a ”real estate divorce” (watch for the article)
Learn how to handle a “SHORT” effectively.

Ain’t Closed Til It’s Closed
Too many agents have discovered the hard way that the approval of the “invisible” partner carries no real weight---until the closing documents have all been signed. Literally. I know I told you, you had to have it; that is called covering yourself. I am also telling you that until ALL the documents have been signed the lender reserves the right to withdraw their approval of the sale. Whether they have discovered another lien, have a request to transfer the file to the MI company, the lender has gone bankrupt or any one of ten other possibilities, it ain’t closed til it’s closed. All parties need to understand that is how it works in the land of short sales.