As published in Scotsman Guide's Residential Edition, July 2011.
When working with short sales and bank-owned properties, loan originators should understand how to communicate and cooperate with a long line of decisionmakers, including banks, servicers and mortgage-insurance companies. Originators who communicate effectively and explain all potential outcomes ahead of time can improve their closing ratio and their bottom line.
The following insights and tips can help you navigate short sales and other distressed-property transactions.
For bank-owned properties, also called real estate-owned properties (REOs), remember:
Many mortgage-insurance companies have specific requirements. For example, the utilities often must be turned on before the insurance company will agree to the transaction. Being aware of such requirements ahead of time is critical.
Many banks list distressed properties below market value in an attempt to attract multiple buyers and bids. This can lead to properties being overvalued. Mortgage-insurance providers realize these risks and likely will turn down a deal if they believe the potential buyer is paying too much.
Borrowers must have enough money to close the transaction without assistance from the owning bank.
Closing cycles likely will take much longer than 45 days. Although many banks have developed streamlined processes for selling their REOs, many continue to drag their feet.
When working with short sales, keep the following in mind:
Educate yourself about differences in mortgage-insurance providers’ approach to short-sale transactions and understand that no two short sales are alike.
Make a point to communicate as often as possible with the seller’s real estate agent. Agents can be valuable sources of information, especially when it comes to providing information about whether the short-sellers carry mortgage insurance. If they do, that likely will play a role in the transaction.
Find out if you’re working in a deficiency state. If you are, it could impact the seller’s decision to proceed with the short sale.
Inform your clients that the process isn’t easy and prepare them for a long transaction cycle. Because multiple parties must agree to the short sale — including a mortgage-insurance company, if applicable — the process can take 60 days to 18 months to complete.
When working with distressed properties — whether short sales or REOs — stumbling blocks abound. By educating yourself and your clients, you can avoid common pitfalls.
The more your borrowers know ahead of time — and the fewer surprises they face along the way — the more likely they are to take advantage of discounted prices and the more likely you are to enjoy increased closings and additional income.
Bruschi is vice president of new business development for Philadelphia-based Radian Guaranty, the mortgage-insurance subsidiary of Radian Group Inc. Reach him at firstname.lastname@example.org.