By Robert Freedman, Senior Editor, REALTOR® Magazine
A few months ago we heard from real estate practitioners about a short-sale contract addendum that lenders were requiring of borrowers to curb fraud, so we talked with David Sunlin, Bank of America senior vice president and operations executive for short sales, to learn more about his company’s version of that form. He said it had been incorporated into the process in part because of a Freddie Mac policy requiring borrowers to vouch that their deal is an arm’s-length one. “They came to us and said, ‘We, as an investor, require you to do this,’ said Sunlin. “And then we looked at it and thought it was a good practice, so we extended it to our entire portfolio that we service.”
As a follow-up to that conversation, we spoke with Kathleen Cooke, fraud investigation manager at Freddie Mac, in mid-June, and she said her company’s requirement was simply putting into formal practice what the industry had informally required all along: that parties to a short-sale transaction show there’s no collusion between them.
Cooke said fraud continues to be an issue with short sales, mainly flipping arrangements, but other types of fraud are cropping up, too. The impact of her company’s anti-collusion affidavit is preventative: some parties that are thinking of colluding aren’t, because the affidavit takes away the legal gray area: Once you vouch for the fact that the deal’s at arm’s length, you have nothing to hide behind if you’re shown to be colluding. Cooke thinks the affidavit is succeeding in combating fraud.
Here are the highlights of our conversation with her: Continue reading »
By Robert Freedman, Senior Editor, REALTOR® Magazine
Bank of America has started requiring buyers and sellers to sign an addendum to its short-sale agreement. The addendum has raised some questions among real estate sales associates and brokers, so to learn more about what the bank is trying to accomplish with the form, REALTOR® Magazine spoke with David Sunlin, senior vice president and operations executive for short sales, deed in lieu, and real estate management for Bank of America.
REALTOR® Magazine: What’s the reason you’re asking for this additional document as part of your short-sale approval process?
David Sunlin: It’s entirely about fraud prevention. We want to ensure that the transaction is at arm’s length and that the property isn’t immediately flipped for a higher price without there being any repairs or upgrades. It’s not punitive in any way and has nothing to do with deterring any part of the transaction, and certainly not the compensation that goes to the agent. We think they’ve earned every penny of that commission and we’re not trying to interfere with that.
RM: Can you go into detail about the kinds of fraud the addendum is intended to curb?
Sunlin: There are two main categories. First, there’s flipping, and then there are schemes in which parties collude or otherwise try to keep the home owner in the home or else pass along some kind of benefit to the home owner from the sale of the property. For example, the parties find a buyer at current market value [which is considerably lower than what the owner originally paid] and that buyer flips the property back to the home owner, or they allow the owner to stay in the home, or they feed the owner some cash out of the deal so that the owner can stay in the home. When you have losses that are on average in the hundreds of thousands of dollars, and in the vast majority of these cases those deficiencies [losses] are being waived [by the investor] to allow the sale to happen, it’s reasonable for us to want to know if there is a hardship, and if the owners were to receive cash payments on the side, arguably that money should go to the investor as the debt that’s being forgiven. In every case, that amount [to the investor] would be much less than the total amount of debt owed, so the investor isn’t made whole by any means. But if someone is saying, “Hey, do this and we’ll throw you five grand,” [that’s not appropriate]. We’ve certainly got programs that will help home owners as they exit. In fact, we’re getting ready to roll out a really nice information packet that we’re going to mail to delinquent customers that advises them of their options to avoid foreclosure and can connect them to some of our social services network partners. We certainly recognize people are in default and experiencing hardship. They need help. We want to be able to connect them to that help, and provide it directly to them as much as we can, but we certainly don’t expect them to use a short sale as a means to walk away with more cash or to purchase the property back at current pricing.
By Stacey Moncrieff, Editor in Chief, REALTOR® Magazine
The more I learn about short sales, I told Scott Thompson yesterday, the more complex they seem. That’s pretty much par for the course, according to Scott, whose company, Mortgage Resolution Services of Sacramento, works on short sales every day.
Scott and I were having breakfast yesterday, preparing for our second short sales webinar. The first, in March, enjoyed an enormous response. Besides the thousands who joined the call, more than 14,000 people have either played back the session or downloaded it.
Yesterday’s session was a bit of a free-for-all. We fashioned it as a way to answer the questions we couldn’t get to in the first session. Some of the key points I took from Scott’s comments yesterday were:
- Second-home and investment short sales are possible. A lot of participants asked about this. Both second-home owners and investment property owners stand a chance of making a short sale work — as long as they’re upfront and honest about their situation. Scott talked about the importance of an effective hardship letter. It should include three elements:
- “Dear Lender: I’m sorry about this situation I find myself in.”
- “Here’s the modification or action I’m requesting.”
- “I’ve exhausted all other possibilities.”