I am interested in others experiences and opinions. I negotiate many short sales in my little corner of the world and am seeing many other "negotiators", both lawyers and non-lawyers, changing the terms of the ratified contract when preparing the HUDs to be submitted to the short sale lenders, to reduce the funds available to those lenders. Often, once the lower amount is approved, the negotiator will take the difference as their fee. I have seen seller credits "inflated", transfer taxes paid by the seller, 100% when the contract says they are to be split, and even false liens added to the HUD to reduce the net. Is anyone else seeing these kind of things. If so, how are you dealing with it? Thanks
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My biggest concern is when I see a prelim HUD that has fees that don;t even exist. Attorney fees when there is no attorney. HOA fees when there is no HOA. A compliance fee. What the hell is compliance fee?
Making sure you have enough money to cover legitimate HOA and taxes is expected. But as Joseph pointed out it has to be reasonable.
If, as 3rd party negotiators, the agents are not handing you deals that make sense then I would require agents to not initiate a binding contract until you have had a chance to look the file over to make sure they have everything addressed properly in the contract. The agents need to be contacting you at time of listing so everyone can be on the same page.
I couldn't agree with you more Bryant, unfortunately they are still catching up to the "how to's". Hopefully we can improve this in the year to come as the buzz is more and more on short sales. :)
We negotiate deals where the only thing on the seller side of the HUD is Title search, Title work Title insurance, state doc stamps, commission, property taxes, HOA fees and mtg liens. That's it. We may include 3% seller concessions but only if we can't find a better buyer and we are under time restraints. The only fee the lenders ever have a problem with if is the search fee of $175. Everything else flies right through every time.
If the file has something unusual that needs to be paid we make it a buyer requirement at time of contract and this is fully disclosed PRIOR to the buyer even looking at the property.
Repair issues and other stuff that may show up are determined at time of listing and the property is priced accordingly. If the property has major issues we only negotiate cash deals so financing and repairs are not an issue.
There is ZERO reason for there ever to be a surprise cost involved with short sale. Unless it is a very rare mistake.
So...padding of the HUD is only needed if the negotiator is not doing their due diligence at time of listing. And that is why a 3rd party negotiator who is not handling the listing and the selling of the property has to resort to these tactics.
Therefore a 3rd party negotiator should have a detailed check list of items the listing agent needs to check. There also needs to be alien search and title search done at time of listing to uncover any issues before the property is sold so any unusual items can be thrown on the buyer side at time of contract.
This stuff is not difficult. I recently saw a padded HUD that had almost $30,000 of expenses on a $180,000 property. $20,000 of these were bogus. Not surprisingly at all the lender countered with a ridiculous price. No one can tell me this wasn't related to the "Padded HUD"
I have personally spoken to lender negotiators about this practice and was told these HUDs are an inside joke. They are not stupid. You can expect guidelines in the near future where the lenders will be the ones giving us the HUD and requiring us to make the deal fit.
My advice is to quit playing games with transactions. Learn how to be a better negotiator. You're kidding yourself and taking the easy way out by thinking "Padding the HUD" is needed.
Bryant, things work a bit different in Illinois and other attorney states. Agents don't do title due diligence. Also, I can't tell you how many times we pull title at the beginning of a deal, then find out later that something popped up when the title is updated. HOA's as well. Leaving room in the HUD has saved deals many times because of this. I also use it to make counters, rather than go back and forth with buyers. Also, I have used tis room to make up for seller contributions, which my sellers are undoubtedly happy about. The key to leaving room in the numbers is to make it reasonable. If title is $1,000, then making the preliminary number $1,200 is reasonable. Making it $5,000 is not. Adding false liens is not acceptable in any circumstance.
I also don't think this tactic is state specific. You cannot justify it because of the type of or actual state you live in. In fact, your statement only further supports Bryant's position.
Padding a HUD is just one of many options to bring more money to the table. In fact, I would think that is the goal of a negotiator. I don't see any flaws in doing so nor do I consider the negotiator to be of inferior quality because they utilize this tactic.
Satar, I wasn't really disagreeing with Bryant, mearly clarifying a point of view. He and I are both in FL. I tend to post only my relm of knowlege, although I highly doubt this issues is limited to FL, it's just the only state I have any personal knowlege of at this time.
Joseph I couldn't agree with you more...Here is the reality of our Realtors and short sales:
Touche'!!!!!!!!!!
I always "pad the HUD" but only with legitimate fees or costs. I estimate high to create negotiating room. If a lender later counters, I can start "giving away" this room. The final HUD must reflect legitimate costs, so you cannot add a tax credit if the credit is not paying taxes.
Preliminary HUD's are supposed to be as accurate as possible. I don't use a negotiator so the issue is a moot point. But..I'm with Bryant here. I fear the word "fraud" is going to come up and may center around this type of thing in the future..
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