Freddie Mac’s Newsletter – How To Respond

I summarized the key points from the Call Jeff Watson and I did regarding the Freddie Mac newlsetter so you could be prepared to handle questions in the field from Realtors or brokers. There are some incredible points in here to help warrant the value the investor brings to the equation and I also placed Jeff’s new disclosure in here as well. Good Stuff, enjoy.

—————————————————————————————–

• How to protect yourself from short sale scams

1. Do not encourage or tell the seller to stop making their payments especially if they can make their payments
2. Do not get involved with strategic defaults
3. Do not misrepresent
4. Make sure your real estate agent only works with the buyer only so there is no conflict of interest
5. I rather like to see you get rejected than do one deal through deception

• What to look for when trying to prevent short payoff fraud as an investor

1. If your borrower suddenly defaults, with no prior adverse history, and they cannot explain the sudden default
2. The borrower is current in all other obligations
3. The borrowers financial information indicates conflicting spending, savings, and credit patterns

• How to defend and have the ammunition to do our business with conviction:

1. You have to believe that what you do adds value

 You must be confidant that you add value in order to succeed in this business
 You are adding value to the transaction

• Facts of a legitimate short sale transaction:

1. Freddie Mac owns the note
2. The mortgage connects the note to the house
3. Freddie is adverse to house owner/seller
4. Foreclosure lawsuit is filed
5. Freddie is aware that the buyer (investor) has an “opposite economic interest” that’s a fact of life
6. There is nothing in the note or the mortgage that the owner of the house has to disclose to the bank that they are selling the property

• Flow of a legitimate short sale transaction:

1. Seller goes into an option contract with buyer which grants the Buyer the right to represent all necessary matter for the sale, market, and negotiations of the property.

 Freddie is not part of the A to B contract nor the B to C contract
 Freddie must approve the contract but they are not part of the contracts

2. The investor in the option contract is discloses that they are reselling for a profit, and reselling the property really quickly

Option Contract language:
SELLER herby grants the buyer and /or their representatives all of the necessary rights to list for sale, market, negotiate and enter into contract to sell or lease the property to a third party. It is the intention of the buyer to procure a third party purchaser at a price greater than this purchase price as a condition precedent to exercising this option since Buyer intends to promptly resell the property for a profit.
(Your option contract must have this verbiage)

3. Option contract is recorded in the county where the property resides

 We record the option contract early in the deal so we fully disclose to the bank what our intention is in this transaction

4. Recorded Option contract along with offer and full short sale package is submitted to bank/lender
5. At this point the investor is working hard in negotiating with the bank ( which could take months or years) then value is subjective, you are creating the value so you can then resell for profit

 The investor is trying to buy the house as low as they can and the bank is trying sell it as high as they can (this is called negotiation)
 When a property in distress it lowers the property value, but once you resolve the distress issue the value then increases.

6. Bank reviews documentation and orders BPO from an approved agent that works directly with the banks
7. Investor pays BPO value, based on what’s negotiated with the bank, sometimes as high as 92% of BPO value
8. B to C bank orders the appraisal on the property; (the loan officer is no longer in control of ordering the appraisal
9. Ensure there are no misrepresentations of value or owner ship of the property to the existing lender, the new lender, or the purchaser.

 All disbursements must be made exactly as stated on the HUD1
Settlement statement, and only to the parties involved in this specific transaction.
 Each half of the simultaneous closing must be kept separate and stand on its own. The sales from A to B must be fully funded and disbursed with money coming from and going to all appropriate parties and the sale from B to C must also stand on its own. The money from C’s lender must not be used to fund any portion of the A to B transaction.

10. Ensure the intermediary’s right to ‘”sell for profit” is appropriately disclosed in the purchase contract.

 The short sale lender must always be institutional lender.

Freddie Mac has stated that property flips are not inherently illegal and not all transactions involving a rapid purchase and resale are improper. Legitimate property flips are acceptable transactions in connection with loans purchased by Freddie Mac.

Take the information that we have provided to you as ammunition against the lack of understanding surfacing from the banks and real estate agent, as armor to go out and do business ethically. And remember be confident that what you do is important and adds value; short sales our making a difference in our economy.