UPDATE 5.15.09 “Obama administration on
Thursday laid out additions
to its housing rescue plan
that are designed in part to make it easier for financially troubled homeowners to sell houses that are worth less than their mortgages.”
This is a concept that I have been putting together,
but one that I believe needs to be implemented.  Please read this and provide me your thoughts and feedback.
Synopsis
Short Sale Certification is the analysis of the current value of a property to allow for timely efficient sale or refinance wherein the lender does not receive its full repayment of debt, but arrests a foreclosure or deed in lieu.  The certification would be an industry wide standard of checks and balances similar to the standards for a borrower.  By stabilizing and decreasing the flow of delinquencies into the REO market pool, the nation’s inventory can begin to stabilize, decrease in volume, increase in value on the road to the nation’s real property recovery.  This is accomplished with the invention and acceptance of a temporary industry to service this unique relationship between owner and lender.
I. SALES – Short Sale Certification.
Short Sale Certification. Short Sale Certification (“S Cert.”) is the analysis of the current value of a property to allow for timely efficient sale or refinance wherein the secured lender(s) do not receive full repayment of debt, but arrests a foreclosure or deed in lieu.  The certification would be an industry wide standard of checks and balances similar to the standards for at the time of sale.  By stabilizing and decreasing the flow of delinquencies into the Lender Real Estate Owned (“REO”) market pool, the nation’s inventory can continue its stabilization, decrease in volume, increase in value on the road to the nation’s real property recovery.  This is accomplished with the invention and acceptance of a temporary industry to service this unique relationship between owner and lender.
History. The real estate industry consists of players and roles which have evolved over that the last few decades loosely described as: Real Estate Brokers (buyer or seller); Title/Escrow Company (escrow) (at times attorneys in certain jurisdictions);
Mortgage Lenders and Brokers; (lender) and Appraisers. (appraiser).  The system works, for the most part.  Temporarily set aside comments on the situation in which the industry finds itself today.  There are various disciplines all checking and balancing each other.  In a normal market, which varies from a seller’s market, to a buyer’s, to flat, declining, rising; each player knows its roles.   Take any example of a real estate transaction, define an issue, and one of the players described above plays a role in determining an outcome, assists in, or declares whether a closing can, cannot occur and why.  If the home needs to be priced, an appraiser assists.  If a buyer wants a home out of his/her budget, the lender determines whether it is feasible.  If you need marking, the listing broker assists.  If home search and comparative analysis of homes in the area is needed for buyers, a selling broker is utilized (also known as buyer agent).  Ensure the title is clear? – the escrow/title company.
The above players make up a largely functioning industry that employs a large section of the nation.  Each was paid typically on
some sort of percentage basis.  If not on a percentage basis, then by quid pro quo payment, in other words, the more you worked the more you are paid.  An escrow officer and his/her company may charge a flat fee, but increased closing increases income.  An appraiser has identical profit incentives. (m0re appraisals, more income).
New Era. There is a void in the new era; we are missing a key player.  Too many delinquencies have matured into an REO
(real estate owned by the bank or ‘bank owned’) pool that is currently greater than the market can bear.  This overabundance of REOs has caused pressure on home prices.  This pressure has in turn caused the tightening of credit markets and ultimately is poised to have further devastating effects.  The S Cert. addresses the need to view delinquencies as an asset.  The delinquency department of lenders has its standards, which if not met, triggers successful foreclose.  The delinquency department, in turn, causes the REO department to sell the asset at typically amounts much lower than a short sale amount.  The delinquencies, where possible, must be solved to prevent the increase in the REO pool.  The S Cert. meets this need.  At this time short sales, wherein the lender receives less than the amount of the true settlement on the encumbrance, are slow, inefficient and unpredictable.  The S Cert. allows a stream line universal approach by independent companies to meet the informational needs of the lender, and allows the lender to make an educated decision on whether the short sale should occur.  At this time a short sale can fail for any number of reasons, leading to foreclosure and an increase in the REO pool.  Statistically, the lender should notice that the failed short sale home is then being listed as an REO at a price statistically less than what the short sale could have produced.  Accompanied by the cost of the management of the REO as it passes into the name of the lender after foreclosure.  An occupied delinquent home is not yet the responsibility of the lender.  By cooperating with the home owner, a lender is able to redeem a portion of its debt and avoid assuming the asset.  A true review of the situation prior to foreclosure is that the home owner is literally managing the asset of the lender prior to the lender’s seizure.  Once the seizure occurs, this home and thousands of others become the responsibility of the lender.  This REO is eventually sold by the lender,
but this assumption of the asset prior to the sale to a third party is an unnecessary expense and only causing further difficulties in liquidating the current REO pool.  The overburdened REO market is forcing adjustments in pricing to accommodate the increasing inventory.  S Cert. would operate where the home owner is in delinquent status or desires to sell although the encumbered home is worth less than the current encumbrances.  The players in the industry described above remain required, but the new player, the S Cert. Certifier producing the S Cert. is also now involved.
EXAMPLE – Listed Real Property.  The home owner hires a real estate broker, the buyer hires a real estate agent, and the buyer hires a mortgage lender or broker to gain their loan.  A transaction is created with a ready, willing and able buyer.  The home is appraised and escrow is utilized to allow for the sale of title insurance, etc.  However, in this market the Seller requires a short sale.  The home is a well cared for property.  If this transaction fails, the REO pool rises.  Currently, the listing broker is the quasi-certifier of the short sale, by providing a comparative market analysis or broker price opinion as the sales price.  The lender is unclear as to what price and terms they should be accepting.  They are unclear on the actual value, for what amount similar properties in the neighborhood are currently selling, and what will be the result of allowing the home to be rendered into the REO pool.  Finally the standards of the delinquency manager are outdated and are unrealistic in its attempt to gain
loan payoff.  Upon the above Example arising, the S Cert. of the short sale commences.  It is performed by licensed companies who operate under similar incentives and payment structures that lenders and mortgage lenders make use to create loans.  The S Cert. Certifier labors on behalf of the Seller, but is compensated by the Lender and Seller combined[1], just as a lender works for a buyer but is compensated by a combination of the lender and the buyer.  The S Cert. Certifier performs a standard check
list similar to the loan officer’s duties in the origination of a loan: 1) Collects financials of the seller[2]; 2) Performs or gains a broker price opinion/comparative market analyses (not to be confused with an appraisal); 3) Supplies or simply adjoins the certification with the analysis of the cost of REO home management in this area of the country (status collected indicating, for example, that the home reclaimed by the bank runs an average of $X per day [taxes; utilities and damage, all averaged]).  The SCert. Certifier then informs the Lender at what amount the home can sell.
The S Cert. Certifier remains in direct contact with the
Seller, Lender, and Listing Broker to effectuate the sale, just as a loan
officer remains close to the buyer and real estate agents throughout the
process.  The S Cert. Certifier being in
direct contact with the proper authority at the lender assists the selling
process greatly and should increase the turn around time.
The S Cert. Certifier could be paid partially upfront and
the remainder at close, ( a quasi mix of upfront fees and commission based); creating
an incentive environment similar to the current models.  This process is
best done prior to procuring of a sales offer, rather at the outset of a
listing.  Just as the current model requires/encourages a buyer to consult
with a lender prior to the home search to understand their financial wherewithal,
the short sale certification is performed at the outset of a listing to allow
for the universal price setting between the lender, homeowner, and listing
broker, so as to allow the listing broker the best opportunity to create buyers
acceptable to the terms of the Certifications.
1099 Income/Deficiency.
The Seller should be allowed to be adversely affected by the
short sale non-payment of debt.  (Current
IRS Code through 2011 exempts owner-occupied gains).  All deficiencies should be waived.
Changes in Marketing and Knowledge of Buyer and
Buyer’s Agency
This program creates a new term in all real estate sales,
the “S Cert.”  At this time,
buyers may avoid short sales due to the unpredictability.  Many buyers
that are willing to attempt current short sales become frustrated, or their
financial condition changes prior to the short sale successful completion.
Now a buyer looks for and knows the S Cert. will allow a timely productive
transaction.  S Cert. becomes a required procedure in the operations of a
short sale.  The marketing of a short sale could include “S Cert.”
approved.”  Essentially just as a buyer
provides a “pre qualification letter” a seller now proves to a
potential purchaser that they are “certified” to attract serious
buyers.
Leave under the Umbrella of Lending
This practice should be controlled by the lending industry
to allow for the certification and control of the Certifiers via the financial
agencies of the States and local governments, with overriding National
advisement.
II.         REFINANCING – Short
Just as refinancing occurs with a loan officer, appraiser,
and escrow, but eliminates the real estate broker, so too should the above S.
Cert exist to allow for what is known as a Short Refinance.  By using the
standards described above, a S Cert. Certifier can solicit current home owners
facing delinquency in an attempt to rescue the home from foreclosure.  The
Buyer essential performs an internal short sale, wherein the principal is
reduced and the home owner is rendered from delinquency to good standing under
the new loan.
Restrictions on Refinancing
Due to the home owner’s allowance to remain in the property,
and because they are not adversely affected by the non-payment and receive a
decrease in principal, there must be restrictions within their ability to
resell.  A homeowner would be allowed to
sell for a profit within a graduated ten year scale, excluding any prepayment
the Seller manages to make.  In the event of a profitable sale, the lender
would be allowed to recoup 100% in the first year decreased by 1/9 of 94% per
year, and upon the 10th year the home owner remains liable for 6% of
gross for the remaining life of the loan.  The home owner is not allowed
to refinance without addressing this restriction.  Further encumbrances
for any purposes are prohibited.

[1] The pricing should be approximately 1-3% of
the amount of refinance or short sale.
[2] This is a controversial subject as the
current short sale scenarios are only allowed in the event the Seller is not
financially sound.  Yet, if the Seller is financially sound they do not
receive the ability to sell in this market without coming out of pocket to
close the escrow, to allow for (as an example) the transfer to a new city, the decrease in
size of their home due to death or divorce.  The industry should consider
eliminating this request to create an even playing filed, as to not punish
those that are sound and reward those that are at even higher levels of
negative balance in their current mortgages and lifestyles.
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