Do you spend thousands of dollars on marketing and then waste the interaction it creates?
I run a company that spends a lot of time and money connecting home sellers with real estate professionals. One of our biggest struggles is convincing real estate agents and investors to treat every phone call, every lead, as if it had $50,000 attached to it.
Especially in small businesses, we tend to get back to people “when it’s convenient” – well, that doesn’t work in the Internet world, where 50 of your competitors are 1 click away and ready to respond faster and better than you are.
And you may not even know it’s happening – most customers won’t say “someone else called me back before you did, so I’m working with them” – they just won’t call you back at all, leaving you to wonder what happened.
In the Internet economy – the research shows that if you take more than 15 minutes to get back to any new prospect who contacts you via a your web site, or a lead who fills out a form, or someone who leaves you a phone message – your chances plummet of ever working with them at all.
That’s something to think about when spending thousands of dollars or more each month trying to reach qualified customers.
Seth Godin (marketing genius and author) has a great post on his blog about this – and how letting an employee who isn’t amazing at customer service answer the phone can waste all your marketing dollars…
The $20,000 phone call
When a homeowner decides to put his house on sale and calls a broker…
When he calls the moving company…
When a family arrives in town and calls someone recommended as the family doctor…
When a wealthy couple calls their favorite fancy restaurant looking for a reservation…
Go down the list. Stockbrokers, even hairdressers. And not just people who recently moved. When a new referral shows up, all that work and expense, and then the phone rings and it gets answered by your annoyed, overworked, burned out, never very good at it anyway receptionist, it all falls apart.
What is the doctor thinking when she allows her neither pleasant nor interested in new patients receptionist to answer the phone?
– Seth Godin
The National Association of Realtors came out with their regular report on the housing market, and they are saying that existing home sales are up 3.7% for March.
That number isn’t all the interesting – but here’s what is:
All-cash sales were at a record market share of 35 percent in March, up from 33 percent in February; they were 27 percent in March 2010. Investors accounted for 22 percent of sales activity in March, up from 19 percent in February; they were 19 percent in March 2010. The balance of sales were to repeat buyers.
This means that all-cash transactions are one third of the current residential real estate market. Real estate investors are coming back in a big way, with big money behind them.
With thousands of home sellers contacting us each month at 1-800-CashOffer and FastHomeOffer.com, I can confirm that much of the real estate market is made up of cash buyers and sellers looking for a cash offer.
The other day 60 Minutes ran another report on “Strategic Defaults” as they are called – home owners who are underwater in their mortgage and walk away from their home (causing a foreclosure) even though they have the ability to continue with mortgage payments.
The most interesting thing about the story was a University of Arizona paper entitled “Underwater and Not Walking Away: Shame Fear and the Social Management of the Housing Crisis” (Typical University title for a paper!)
It’s a fascinating read if you have some time. We can debate all day long the ethics of home owners walking away from their obligations, but the fact that it’s happening isn’t in dispute – and real estate agents, investors and other professionals should be thinking through the ramifications of it for their business.
Most home owners don’t realize (or maybe don’t care) that there are many alternatives that are much better than a foreclosure – a loan modification or short sale are all much better alternatives to giving up and walking away.
Here is the 60 minutes segment
According to the “Distressed Sales Activity” report from First American CoreLogic, distressed home sales are on the rise again, accounting for an amazing 29% of all home sales in the month of January.
Nearly 1 Million distressed sales occurred last year, which includes short sales and real estate owned (REO) property.
Distressed property sales are at their highest levels since April of 2009.
Expect to see this trend to continue – there is still a lot of pent-up housing inventory in the system, banks are finally starting to liquidate their REO portfolios faster, and there is a strong focus on completing short sales quicker.
Real estate agents and investors should keep their eyes on the distressed property numbers, this will be a very large part of the market for the next few years!
First impressions are everything.
If you are running a business (real estate investing, real estate agency, brokerage, etc) and you are using AOL, Gmail, Hotmail, Yahoo Mail, Comcast, RoadRunner, SBC Global or any other “consumer” or “free” email account to communicate, you are broadcasting to the world that you are a novice, and you’re running your business out of your garage.
Using a free email account for business communication is like wearing shorts, stinking, and showing up late to a business meeting – it says I don’t care enough about my image to spend 30 minutes and a few dollars fixing myself up to be presentable.
Here is how to upgrade your image and never again lose business because of your email account:
Step 1: Register a Domain Name. You may already have a web site, if so use that domain. If not, domains are $7 per year.
Step 2: Register for Google Apps. Google will provide you with up to 50 email accounts at your domain name (email@example.com) along with document management and a host of other services – all for free. You can check your email via the web, iPhone, Outlook, Blackberry or just about any other device.
Step 3: Configure your domain to send email through Google Apps. Once you have a Google account setup, you can view instructions for how to do this for various domain registrars (Godaddy, Network Solutions, etc)
Step 4: Set your AOL/Gmail/Hotmail/Yahoo/etc account to forward ALL incoming mail to your new firstname.lastname@example.org email account hosted by Google.
Step 5: Never, ever again tell the world you don’t know what you are doing by handing out an email address that isn’t professional. You won’t miss out on any email from people that have your old account because of the forwarding – but from this day forth only give out your professional email address when in a professional setting.
The entire cost of fixing this glaring hole in your image is the yearly cost of a domain name – about $7. Sound too technical? Your local neighborhood 13 year old would be happy to to help for a 6 pack of Coke!
The Short Sales and Bank Fraud story continues to gain traction. After CNBC aired the story we brought them, dozens of other media outlets, bloggers and authorities have contacted me to discuss this topic.
Here is the story of how this fraud initially came to our attention, along with the evidence to back it up.
Last year, I was contacted by an experienced real estate agent in our network who negotiates many short sales. She had recorded a conversation between her and a supervisor in the loss-mitigation department at a major national lender, who she felt was trying to get her to do something illegal.
Here is the audio of that recording, along with the transcript. The names have been removed at the request of the agent to prevent backlash from the bank.
AGENT: OK, so the only way to settle with *LENDER* then is to get money from somebody else and pay it prior to – that’s what *LENDER-EMPLOYEE* suggested – pay it prior to close of escrow, outside of…. <unintelligible> Pardon me?
LENDER: That is something you can do.
AGENT: Pay it outside of escrow, off the HUD, prior to close.
LENDER: Right, that’s something you could do.
AGENT: And is that something you guys do regularly or you see people doing?
LENDER: Yes, that happens – we have people that send us money outside if they need approval letters <unintelligible> from the first, and once we receive the additional funds, the approval letter can be sent for what the first actually offered – so it happens.
AGENT: OK and what about the fact that the first says that, no more than you know, a certain percent is to go to the second?
LENDER: OK, if the first… Here’s the thing, if you’re asking what this is about – the first is saying “well here’s what I’m going to allow” and the first is saying “this is what we’re willing to pay out.” If there’s a contribution, if you don’t want to be able to come up with the additional that we’re asking for – the first has already gave their approval on what they’re doing – what someone just comes up with has nothing to do with the first.
AGENT: Even if on this letter it says that “the second is not to receive any more than a certain amount”?
LENDER: The first can not dictate what we receive. The first is saying what they are only going to allow. That’s the amount that they’re allowing to us. If someone out there – the buyer – or a family member puts more money and says here’s what I want to give for you because here’s the additionally requested funds – that has nothing to do with the first.
You’re not asking the first to come out of their pocket any extra than what they are willing to give. So that that’s not any information that might have to be required on the HUD.
Hold on one second please. <long pause>
LENDER: So I need to have the information – you’ve had the opportunity to go over this with *LENDER-EMPLOYEE* – did he explain all this to you on how this takes place?
AGENT: Well he does but I’m having a tough time, ******, I’m licensed and everybody else…
LENDER: It’s not illegal; it’s not a hard thing, this thing that has happened. The information that you’ve actually received from us – we’re actually trying to help you get this deal closed. If you choose to go back and tell the first what’s going on – you’re going to kill the deal.
So what actually happens prior to closing has nothing to do with the first. What happens at closing – that is information you can provide to them. If you are able to come up with additional funds not to get this deal closed prior to closing, then that’s fine – that’s irrelevant for the first. If you go ahead and you want to let the first know “well, here’s all the information that I have – here’s what’s going on” you will be the one to actually kill this deal. I’m trying to actually give you a way to go about getting this resolved. If you take our suggestion – you take the information that *LENDER-EMPLOYEE* has given you – you can have this done.
If not, then you know, those guys are going to foreclose on it and it’s a done deal. But it’s not like we’re holding up this process.
AGENT: Well, what about the form that the buyer’s lender puts out that there are – that everybody has to sign that says there are no side deals? <long pause>
I mean that… How do I get around that?
LENDER: What you need to take care of actually is not going to be a problem. What they submit to us – there is $****** they are giving us – the only thing you have to worry about – I mean it sounds like you’re scared that you’re going to be fined for something because you are doing something you are not supposed to. This is what we do all day.
AGENT: Well yes, I don’t want to lose my license, go to jail, I mean, I have to sign…
LENDER: You’re not going to lose your license – we have plenty of realtors who do this, who actually understand how this whole process goes – and they realize that OK, if I want to get this done, this will take place. Nobody’s losing their license and nobody’s going to jail, nobody’s receiving a fine…
So and here’s the thing too, I’ll be really honest with you, if you are uncomfortable about working it, you can probably assign it over to someone else, where they would be able to do this – if it makes you feel that uncomfortable – you should probably just assign it over to someone else. Someone who’s actually been able you know – who’s done this before, who’s more familiar with it.
Not to be disrespectful or rude to you or anything like that, but we deal with this every day all the time, this is not something out of the norm. But if you feel like you are doing something that’s against your morals, please assign it to someone else who’s been able to do deals like this so they can get it done, and you can have a happy buyer and a happy seller.
AGENT: Well, how do I get, I mean what’s the logic or if I could understand – when I’m signing a paper put out by FHA that says there are no side deals – this is a side deal.
LENDER: This is a contribution. <long pause> You guys are able to come up with money in order to get this deal closed.
LENDER: OK. So the offer that we have it still stands – you can call *LENDER-EMPLOYEE* back and let him know if, what you’re going to do, and if you guys foreclose, we understand. If you’re not comfortable with this – go ahead and assign it over to someone else.
AGENT: <sigh> OK, well thank you for your time.
LENDER: No Problem
The response to the story we brought CNBC on fraud in short sales has been amazing!
The whole goal of getting this story out there was to change the practice and prevent it from happening in the future. It’s obvious from the response that this is a major issue, hopefully the authorities will take notice and investigate this practice.
Here is Diana Olick’s follow-up:
Our investigation into allegations of short sale fraud by some of the nation’s major lenders certainly struck a nerve in the lending community, but it also served to show me just how uneducated many in that same community still are, even today.
It’s clear from the dozens and dozens of comments on the blog page that many mortgage professionals still aren’t sure how exactly short sales work, and what is and is not legal.
Due to some technical difficulties on air Friday, I was unable to show a couple of MLS listings that were sent to me that clearly, on the public listing, demanded cash to the second lien holder outside of settlement as part of the transaction. Just so you know, that’s illegal. Yes, a second lien holder can demand payment on the loan, but it has to be documented as part of the sale.
And then just a few minutes after the story aired Friday, I received another email from my whistle-blower, Kayte Gentry:
Diana – we thought it funny that this came in about 10 minutes after the 2nd airing of the story…the email is to my Lead Negotiator.
The agent contribution of $500.00 can’t show on the HUD. Have that removed and resend just the HUD.
If it shows on the HUD the investor thinks they are getting it and not the 2nd lien holder.”
The author of the email reportedly works at Citi, as her email address shows. I have to believe/hope that she doesn’t even know what she’s demanding is illegal, otherwise I can’t imagine she would put it in an email. This is clearly fraud.
I also went on another real estate Web site that specializes in Realtor blogs, and there was a huge string/conversation of real estate agents explaining to each other how to keep second lien payments in short sales off the HUD settlement statements. Right there, in black and white, on the web.
I hope someone in regulation land is listening!
This morning CNBC aired the story we brought them regarding short sales, bank fraud and kick-backs to banks.
Diana Olick — CNBC Real Estate Reporter
Big Banks Accused of Short Sale Fraud
Just as regulators, lawmakers and all forms of financial oversight boards are talking about new regulations to guard against mortgage fraud and another mortgage meltdown, there appears to be yet a new mortgage fraud out there today, allegedly perpetuated by agents of, yes, the big banks.
I was first alerted to this by Jeremy Brandt, the CEO of several companies that bring short sale agents, investors and sellers together.
His companies include 1-800-CashOffer, HomeFlux.com and FastHomeOffer.com. Brandt has a huge network of short sale real estate agents, and over the past several months he’s been receiving all kinds of questions and complaints about trouble with second lien holders.
As we all know, during the housing boom, millions of Americans pulled cash out of their homes in the form of home equity loans and lines of credit. They also used “piggy back” loans in order to get even lower interest rates on their primary mortgages. Now, many of the borrowers in trouble, and many who are so far underwater on their loans that they don’t qualify for any refi or modification, are choosing short sales as a way out. (Short sales are when the lender allows the home to be sold for less than the value of the loan). About 12 percent of all home sales by the end of 2009 were short sales, according to the National Association of Realtors.
In order for a short sale with two loans to happen, the second lien holder has to drop the lien.
If they don’t, and there’s no short sale, the home goes to foreclosure and the first lien holder gets the house because second liens are subordinated debt to the primary loan.
In short, the second lien holder gets nothing. In order to get the second lien holder to drop the lien, the first lien holder generally negotiates some partial payment to the second lien holder. The second lien holder doesn’t have to agree, but more and more are doing so.
That’s all legal.
But here’s what’s not legal and what’s apparently happening quite often recently. Since many second lien holders are getting very little, they are now allegedly requesting money on the side from either real estate agents or the buyers in the short sale. When I say “on the side,” I mean in cash, off the HUD settlement statements, so the first lien holder doesn’t see it.
“They are pretty clear and pretty upfront about the fact that if the first lender knows they are getting paid, the first lender will kill the short sale,” says Brandt. “So these second lenders are asking for the payments off the closing documents, off the HUD statement, usually in a cashiers check prior to closing. Once they receive that payment, they will allow the short sale to go through, which according to RESPA laws and the lawyers that we have spoken to on the topic is not legal.”
(RESPA is the Real Estate Settlement Procedures Act, the 2008 law requiring that consumers receive disclosures at various times in the transaction. It outlaws kickbacks that increase the cost of settlement services. RESPA is a HUD consumer protection statute designed to help homebuyers be better shoppers in the home buying process, and is enforced by HUD. Read more about it here.).
I told RESPA specialist Brian Sullivan over at HUD about all this and he replied, “That’s a red flag!”
Brandt told me he’s heard from at least 200 agents that they’ve had these requests made by representatives of Citi Mortgage, JP Morgan Chase, Bank of America and other large banks.
Most agents wouldn’t go on the record with me, for fear of retribution by the banks with whom they have to work every day. But one agent, Kayte Gentry, of Keller Williams Integrity First Realty, was brave enough to blow the whistle.
“I think it’s wrong, and I think somebody needs to hold them accountable, and every time I lose a house in foreclosure because of this, it hurts my client,” says Gentry matter-of-factly. “Aside from being illegal and a violation of RESPA, it’s immoral and truly it’s just sad for the client that it’s hurting.”
Gentry says she has had the requests made three times and claims she lost one sale because of it.
“The big banks that have recently made this request, specifically payments outside of the closing statement have been Citi Mortgage and JP Morgan Chase.”
JP Morgan Chase simply answered, “No Comment,” when I relayed the charge to their media representative.
Bank of America denied the practice to CNBC in a written statement:
“Bank of America enforces a policy that all disbursements are documented on the settlement statement for short sales. When we are servicing a first mortgage with a second lien held by another investor, if the second lien holder asks for off-HUD payments, we will not approve the transaction (if we have knowledge of it). It is also against Bank of America’s policy to accept off-HUD payments on its second liens.”
Citi ‘s reply was a bit more complicated:
“We work very hard to help distressed homeowners find solutions for their financial challenges. In our attempt to amicably resolve the debt, we will generally negotiate a reduced settlement with the homeowner in order to release a second lien. Unlike some lenders who refuse to reduce the payoffs on second liens, we choose to reduce the payoff amounts in some situations to assist the borrower. We do not provide instructions to settlement agents on how to fill out the settlement statement or any other closing documents, and we certainly do not require settlement agents or any other parties to violate applicable laws.”
“When we confront the lenders and tell them that this request is illegal and a violation of RESPA, they tell us it’s been cleared through legal and they don’t care. Do it anyway,” charges Gentry.
I personally heard a recording of a phone conversation between a short sale real estate agent and a second lien lender, during which the second lien lender clearly asked for cash outside of the settlement and threatened to kill the deal without it.
The real estate agent was rightly concerned and reluctant (the recording was given to me by Brandt who got it from the agent. The agent would provide no information on the lender, for fear of retribution):
AGENT: Well yes, I don’t want to lose my license, go to jail, I mean, I have to sign…
LENDER: You’re not going to lose your license – we have plenty of realtors who do this, who actually understand how this whole process goes – and they realize that OK, if I want to get this done, this will take place.”
I contacted the Treasury Department, HUD, FINCEN (Financial Crimes Enforcement Network) and the Federal Trade Commission, and none of their representatives could tell me of any active investigation into this. The folks at HUD said they’d be very interested to see my story.
We recently uncovered a massive fraud in how some banks are handling short sales…
First, read “What is a Short Sale?” for an overview of the short sale process.
There has been a disturbing trend recently of lenders asking for back-channel, secret deals in order to approve a short sale on a home. These lenders demand that the payments are not disclosed on the HUD statement, intimidate agents and home owners, and even say up front that if the payments are disclosed, they will stop the short sale from proceeding.
The typical scenario is when there are two loans on a property (a “first” and a “second”, sometimes called an 80/20 or 90/10).
In a foreclosure, the lender in first position usually gets the house, and all the other loans are wiped out and get nothing.
On a property with two liens, both lenders must agree to the short sale, and the first lender will typically dictate that the second lender only receive a small amount of money (usually 5% or 10% of remaining loan balance) because the second would lose everything if the house was foreclosed on.
If anything more than a token amount is paid to the second lender, the first lender will generally not agree to a short sale.
Some lenders in second position are now asking sellers, agents, and buyers to make a large, cash payment before closing, that does not appear anywhere on the HUD statement or closing documents in order to approve a short sale. They say this payment must not be on the HUD-1 statement, because if the first lender found out about it they would likely stop the short sale.
These are major lenders encouraging real estate agents and others to commit fraud, and extorting money out of buyers in order to approve the short sale transaction.
This problem is massive, and over the past 45 days I have spoken to over 120 real estate agents and investors around the country who have seen this issue with many different lenders. Most do not want to speak up because they feel that if they say anything negative about these banks, they will be “blackballed” in the industry and will no longer be able to negotiate short sales with banks – thereby destroying their livelihood.
The net effect of all this is that homes are being foreclosed on when there is a ready buyer, agents are put in a position of choosing between their ethics and helping their client, and the housing downturn will be prolonged as more homes are unnecessarily foreclosed on. Banks are behaving in an incredibly unethical (and in some cases illegal) manner, which is the type of activity that helped bring on the housing crisis.
An addition, when buyers pay extra money to buy a home, and it is not disclosed in the closing documents, all future appraisals in the neighborhood are based on artificially low values – further depressing the local housing market.
If you see this happening please speak up! The only way to prevent banks from continuing to engage in this fraud is to publicize it, report it to the authorities, and refuse to engage in unethical, fraudulent or illegal transactions.
A short sale is the sale of real estate in which the sale proceeds fall short of the balance owed on the property.
It generally occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a loss is better than foreclosure.
Both parties must consent to the short sale process, it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrower. It is becoming a common practice as so many home owners owe more than their house is worth.
In a short sale without recourse, the lender does NOT pursue the home owner (borrower) for the forgiven debt. Otherwise the lender may sue the home seller for the difference between the sales price of the home and the remaining loan balance.
Example Short Sale:
Steve bought a house for $320,000 and financed the property with an 80/20 loan. He got a loan for 80% ($256,000) from one lender, and a second loan for 20% ($64,000) from another lender in order to 100% finance the property.
A year later Steve has lost his job and can no longer afford his house payments. He’s 3 payments behind and is headed towards foreclosure.
Steve decides to sell his house and downsize. Unfortunately, property values have fallen in his area and the real estate market is slow. He receives an offer for $205,000 to buy his home.
Since Steve still owes $320,000 on his house, he must either come up with the difference ($115,000) in order to sell the home, or request his lenders accept a short sale.
Because he is behind in his payments and the lender does not want to foreclose, the first lender (the 80% lien holder) might agree to discount their loan to $202,000 (a $54,000 discount) and the second lender (the 20% lien holder) might agree to discount their loan to $3,000 (a $61,000 discount). The second lien holder typically gives a much larger discount because if the first lender forecloses on the property, the second lender gets nothing, while the first lender gets the property.
With both lenders agreeing to discount their loans, the house is sold for $205,000 and foreclosure is avoided. The home sellers will not receive any funds from the sale, and typically must prove a hardship (lost job, divorce, etc) for the lenders to agree to a short sale.
In general the IRS does not tax forgiven debt from a short sale (contrary to many reports). See the IRS Home Foreclosure & Debt Cancellation site.
As long as the short sale is without recourse, the lender does not pursue the borrower for the difference between the original loan amount and the discount and the debt is forgiven.