FHA 15 day MLS Requirement, Fannie/Freddie 5 day MLS Requirement including a weekend
I am a real estate broker & investor, & this new requirement as of 10/1/14 has basically ended all short sale investor's businesses. Am I missing something or is there a way to overcome this ridiculous guideline? As a short sale investor, it is extremely discouraging to spend money on marketing, pay a marketing assistant, take numerous marketing response phone calls, attend numerous appointments with the homeowners, spend countless hours submitting numerous short sale packets, spend countless months upon months negotiating with numerous lenders, to finally get an approval letter. And upon getting the approval letter, FHA now demands I break my signed legally binding contract with the homeowner so the homeowner can list the property on the MLS for 15 days & another investor that has not spent even 1 minute on the short sale can swoop in & take the deal right out from under me by submitting a higher offer!! Really?? And it's not just FHA insured short sale loans, it's Fannie & Freddie too with their 5 day MLS requirement including a weekend. As we know most all loans are either FHA, Fannie or Freddie insured...& as always all of the others will soon follow including the banks that own their own loans, PMI insured loans, private investor backed loans, etc. Those of you on this forum that only act as real estate agents on short sale transactions will for the most part not be affected at all by this new requirement. But what do you tell your investor client that brought you a short sale listing that the investor already had under contract? How do you tell the investor after he/she has spent months of hard work on the short sale, "tough luck Mr/Mrs Investor, FHA now requires us to terminate your signed legally binding contract so we can list on the MLS for 15 days to receive a higher offer than yours...but thanks anyway for the listing because now it's time for you to walk away with nothing!! And what about those on this forum that are short sale investors, how are you handling this? Is there a way to stay in business or are you too going to get out of short sales & move on to other real estate investing strategies?
Replies to This Discussion
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Permalink Reply by John Last on
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I'm not sure you are understanding my point, or I didn't explain it well enough. Are you saying the FHA appraisal is not fair market value? That's the value that's on the ATP letter & I already have a contract on the property that nets the lender the required 88% of the appraised value within 0-30 days of the date of the ATP letter. Now FHA will only accept my offer after the property has been listed on the MLS for 15 days but only if there are no other higher offers....FHA is actually forcing me to break my signed legally binding contract with the homeowner (that already meets the required lender net) so the property can be listed on the MLS for 15 days so another buyer that has not spent even 1 minute on the short sale can swoop in & take the deal right out from under me by submitting a higher offer. How can you say that this doesn't make any difference? If you've worked with any investor/buyer in this situation, then how did you tell the investor/buyer that his signed legally binding contract with the homeowner (that already meets the required lender net) is no longer valid & you are now going to list the property on the MLS for 15 days & accept a higher offer? This is completely different than those lenders that do the auction platform...simply because none of those properties are already under contract with a buyer prior to the start of the auction! I fully understand that just because a seller is willing to accept an offer of $1 from a buyer that it does not mean the seller's lender will agree to a short sale for $1...that is not at all what I am referring to. I am referring to my offer that already meets the required lender net which is 88% of the FHA appraised value/ATP value within 0-30 days of the date of the ATP letter.
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Makes sense. Have you or anyone else on the forum heard of a creative way to comply with the guideline & still have the investor that has worked months & months on the short sale have the ability to purchase the property at the required lender net without losing the deal to the MLS? I've heard of some agents marketing the property as contingent for 15 days & then submitting the investors offer that meets the required lender net. I've also heard of some agents marketing the property as active for 15 days & including in the agent remarks, "no showings / no offers within the 1st 15 days & then submitting the investors offer that meets the required lender net. Obviously best to have an attorney review & approve these methods before implementing them, but wanting to know what other investors out there are doing or what other agents with investors are doing when they are faced with this guideline.
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FHA requires you to sign their addendum that specifically states that in a multiple offer situation during the 15 day marketing period, you as the listing agent agree that you submitted to the lender the "highest net offer" to the lender...the seller does not have the choice to pick the offer that they choose, just like the buyer that already has the property under contract does not have the right to buy the house until after the 15 day marketing period if there are no other higher offers
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John, I know this is a common strategy for investors....one that probably needs to be rethought. Any lender/agency has the goal to minimize their loss, and of course has every right to. Agents playing the stall game you mention are common, but dangerous for them. You don't have a binding, enforcable, purchase contract with the seller as it is subject to the shorted lender's approval.
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It's not just a common strategy for investor buyers, it's the only strategy for short sale investor buyers that market to pre-foreclosures & has been that way ever since the origin of real estate lending. An investor buyer will always have a signed binding/enforcable purchase contract with the seller at the start of the short sale process that is contingent on lender approval. Just because it's contingent on lender approval does not mean it's not a binding/enforcable contract...that's like saying a contract that's contingent on an inspection or financing is not a binding/enforcable contract...of course it is & the seller cannot accept another offer from another buyer while they are currently under contract. I agree that every lender has the right to minimize their losses, & they can either accept or reject any offer that is submitted to them based on their determination of value & the amount of loss they are willing to incur. But requiring the property be marketed on the MLS for 15 days when it is already under contract is completely different. Especially since most lenders require a signed purchase contract before they'll even initiate the short sale, & then after the bpo/appraisal the lender then requires the purchase contract be terminated (even thought it meets the lender required net) so that the property can be marketed on the MLS for 15 days to find a buyer willing to pay even more / cut out the investor buyer? Completely ridiculous. We will see a complete elimination of investor buyers nationwide that will no longer market to pre-foreclosures to proactively initiate short sales. This will result in an increased foreclosure rate & increase in REO bank inventory. If there are any short sale investors on this forum that market to pre-foreclosures (Realtor or non-Realtor), please reply with how you plan to continue your short sale business. Hopefully there's a way for us to continue, but with this new guideline taking over I have yet to figure out how it will be possible.
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The "investor initiated short sale" bus seems to have left the station. Time to find a new bus?
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Lol, I hope it's not time to find a new bus. There has to be a way to stay on the same bus...maybe not in the front seat anymore, but there has to still be a reasonably lucrative seat in the back of the bus somewhere. Just haven't found it yet & hoping someone on this forum that markets to pre-foreclosures & purchases short sales can add their input on how to stay in business with this guideline
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