Most Realtors do not understand the significance of the Mortgage Debt Forgiveness Act enacted December 20, 2007. They are unable to give a layman’s explanation of the difference between acquisition and non-acquisition indebtedness. In addition to having a competent understanding of the Mortgage Debt Forgiveness Act, Realtors should also be familiar with IRS publication 4681 that deals with this issue and have a working knowledge of how Form 982 is completed and made part of a homeowner’s tax return. They fail to refer the homeowner to a competent tax practitioner to properly complete the necessary IRS forms.
Another area of responsibility that Realtors typically misunderstand is how secondary or junior liens are prioritized and handled. These liens must be released and/or satisfied as part of a short sale. Realtors do not understand what to do when a first mortgage holder will only allow a second mortgage holder to receive $2,000 and the second mortgage holder demands a minimum of $10,000 to release their $50,000 lien. This common stumbling block trips up many Realtors and will nearly always befuddle every homeowner who is attempting to negotiate their own short sale. However, experienced real estate investors know exactly which one of many solutions to implement to overcome this seemingly insurmountable obstacle.
Realtors are unaware of how to handle a lender request for seller contributions. Many times aggressive debt collection practices will result in lenders wanting the seller to contribute something towards the pay off either by signing a promissory note or by reaching into retirement accounts such as an IRA or 401(K) to pay down any indebtedness. Realtors who fail to understand the protected nature of such retirement accounts are jeopardizing the homeowner and the homeowner’s future financial security. Telling a seller to withdraw money from retirement accounts to complete a short sale may be “malpractice” by the Realtor, as well as the Realtor’s broker. Realtors must understand in what states mortgage debt is recourse and which states it is non-recourse.
Another area that Realtors frequently fail to live up to their necessary obligations and duties is in making sure that the title and escrow companies responsible for closing the transaction have a complete understanding of the process. In addition, Realtors need to be aware of what their Title Insurance Underwriter requires.
In this era of declining business many Title and Escrow companies will claim that they understand how to close short sales; however, the difference in handling a short sale transaction as compared to a regular transaction is the same difference as seeing your general practitioner for a physical versus undergoing a procedure performed by a neurosurgeon. The latter requires a great deal more skill, training and expertise. It is the same with closing short sale transactions.
Finally, most Realtors do not understand two key facts regarding HUD-1s. First, a preliminary HUD-1 is an absolutely crucial and vital negotiating tool in a short sale transaction with one or more lenders. Knowing how to use a HUD-1 in the negotiation process to better facilitate the short sale is a skill that traditional Realtors are not taught. Furthermore, when a short sale transaction appears to be closing, a preliminary HUD-1 must be completed by the appropriate Title and Escrow company and sent to the lender or lenders for approval before closing the short sale transaction. The HUD-1 that is sent for approval to the lender must be consistent with the most recent negotiating or preliminary HUD-1s but it also must be the absolute complete, honest, gospel truth, fully documenting every dollar being involved in the closing.
Since short sales are a constantly changing and evolving area, Real Estate Agents need to make the commitment to receive ongoing training from knowledgeable individuals about the latest trends in short sales or they need to work with knowledgeable investors and or negotiators.
Jerel Washington, Realtor
CDPE, SFR, CSP, QSC, ABR, e-Cert
Keller Williams Realty
100 Canal Pointe Blvd, Ste #120
Princeton, NJ 08540
Office: 609-987-8889 x135
Cell: 609-933-9044
Alt Websites:
www.JerelWashington.com
www.CanalPointNews.com
www.CNJDistressedHomes.com