Listen to the podcast here
Short Sales in Today’s Real Estate Market with Melody Medley
I’m always jacked up to have amazing guests including our special guest, Melody Medley from Oyezz Real Estate group. How are you doing, Melody?
I’m doing awesome. Thank you.
You and I met at the Propelio DFW Real Estate Meetup Group. We had a booth right across each other. We’d connected earlier on a couple live streams with Ryan. I love it because you’re sitting there, you’ve got your staff with you that says, “Got short sales” on t-shirts. I’m like, “There is a woman that I need to talk to,” because the fact is I’ve got a history of owning a short sale negotiation company in years past. Short sales are one exit strategy that we use as note investors. When we buy the note, we become the bank and we often offer up a short sale to the borrower. Why don’t you share a little bit of some of the 411 about short sales to our audience out there?
A short sale is negative equity. When a homeowner is upside down on their mortgage, they owe more than what the property’s worth. Typically, they get in that situation because of a financial hardship. It could be a divorce, loss of job, relocation or a loan modification that gone bad. All those events can lead up to them being upside down on the mortgage. Nobody’s going to overpay for a house, the only way that the homeowner can get out of that situation is through a short sale and negotiations with their bank for shorter payoff of the mortgage.
You’re seeing short sales in Plano?
Not specifically in Plano, but in the DFW area; Dallas-Fort Worth, Tarrant County, Dallas County. Every now and then we’ll have some in Collin County and Kaufman County. We do all of DFW.
Let’s talk about the mechanics because short sales is a little different than were ten years. How long have you been doing short sales?
Seven years now.
How is it different now than it was seven years ago?
The banks have gotten stricter, which is good and bad. There are guidelines that can be potential roadblocks for you, as a processor. Ultimately, rules are there for a reason. They protect the borrower and the agents when doing the short sale. It used to be a quicker back in the day. Now, it’s taking a little bit longer. Those are due to the guidelines and restrictions. Overall, if we get a short sale into processing, 99% of the time we can get it closed out.
What are some of the discounts? If they owe $250,000 and the house is worth $200,000, are you getting it down to market value or below it or you’re pretty much right at it?
It depends on the condition of the property. In a short sale, the bank is going to send out an appraiser or a BPO, Broker Price Opinion. Whatever the current condition of that property is, is what the bank’s going to want. If it’s a distressed property, the value is going to come in low. That’s good for investors. They’re going to be able to make money, do the rehab, sell it, whatever they want to do with it, rent and hold. That’s when they’re going to make the best money out of that property or the short sale. If it’s retail nice, the property is going to appraise high or just average retail prices in DFW. Therefore, the investors are probably not going to get it or want to buy it. That’s when I throw on the MLS and find a retail buyer that way. It depends. There’s no mathematical equation that I can tell you that, “Yes, if the borrower owes this much, the discount’s going to be this.” It all has to do with the condition in that appraised value.
A lot of people are out there saying, “I’m going to throw in at $0.60 on the dollar when I see a short sale.” You’re like, “I don’t like those people.”
I’m agreeing with you. That’s how they think me and some of you think that. I wish there was a mathematical equation, that would be great, but there’s not.
When a borrower reaches out to you that they’re upside down, and they want to sell the house, what are some of the things that you’re doing to get things rock and rolling, to get it into processing with the banks?
How we operate is that we have investors refer the leads over to us. They’re marketing to the pre-foreclosure list or maybe they’re blanket marketing. However, they’re getting their leads, they’re vetting it and finding out that this was a short sale, they refer it over to us. We take over and we do all the legworks. We’ll meet with the homeowner, get them signed up, explain the process including the pros and the cons, get all the paperwork signed up, get it back into the office, and then I start the negotiations with the banks or the lenders. We take it all over from there.
I know that when we were doing that a few years ago, the Equator was a big thing. It was where you could track everything with paperwork and everything’s uploaded. Is that still around? Is it still operating now with the bigger banks?
It is. It’s only with Mr. Cooper, also known as Nation Star, Bank of America and Auckland will do it too. There are only three banks that use the Equator. I love Equator. I love it because the Equator is a portal between the agents and the bank. You can upload documents and do emails, but everything is tracked. Everything is recorded. If you send an email, they can’t say, “I never got that.” “No, it’s right here.” If you were working with Wells Fargo and they only accept faxes, they can always say, “We never got that.” There’s no way to prove it except when you get off your butt, go over to the fax machine, and check it out because, “I’ll have confirmation that I sent it.”
They still only accept faxes?
Yes. No electronic signatures. They make life impossible for us, but we always find a way.
What’s the difference in timeframes as far as negotiations with Bank of America and Nation Star with the Equator? It’s probably a little bit faster than the 19th Century Wells Fargo?
Yes, because if you fax something, they have to have a day or two to receive it and then upload it. Then another day or two to verify the form is correct. That’s a week right there if you send in one document. If you put it into Equator, they get it that day, that specific time. Within 24 hours, they have that reviewed. Equator is a lot faster.
What’s the timeframe from start to finish? What are you seeing as far as delays? Is it a month? Is it nine months? Is it four years? What’s the negotiation aspect of getting these things approved?
It does depend on the type of loan and the lender but typically, it’s four to five months from beginning to end.
That’s a lot better than what is used to be. When we were doing a lot of short sales, our longest one was four years. We kept the lady in her house in Salt Lake City for four years with four kids because we did it for our investor side, but we also did for people that would reach out to us trying to help them delay the foreclosure process. This lady went back to school, got an associate degree, started making money and then ultimately, she was able to negotiate a loan mod after four years with a short sale going back and forth.
The longest one I did was three years, but it had three mortgage liens.
Let’s talk about this because there are a lot of people out there like, “The market’s great. We don’t see any short sales.” Where are you seeing most of the short sales happen? Is it with distressed, people’s ugly houses or decent parts or lower parts in Dallas? Everyone talks about Texas being a great State and it is a great State. The faster foreclosure state and 21 days to foreclose. We’ve had values keep doing this. Dallas is a hot market, but we still see defaults, right?
Yes, we do. We get them all over DFW. There’s not one pocket area that has the most defaulted loans. It depends on the homeowner’s situation. Yours dragged out for a long time. We’ve seen that with homeowners who will apply for a modification. During the modification, they advise the borrower, “Do not pay on your mortgage.” During those months that they’re being reviewed, if it takes four months for them to be reviewed for modification, that’s four months that they’re behind. Then they get denied for the modification, but then they can go back and be reviewed a couple months later. Now, they are six months behind, which leaves another year. It adds up after a while. People get behind. They missed a couple of mortgage payments, they may take partial payments first and then the banks don’t take it, or they add on foreclosure fees. It adds up. There’s no rhyme or reason to what pocket areas. It’s the homeowner’s situation and what they’re going through.
Do you still have to list the property on the MLS?
With FHA loans, you do have to list. It’s a requirement. If it’s a conventional loan, it depends on the investor or the note holder or servicer. Sometimes they don’t have to list it. That makes the investors happy, especially if they get them the property. I would say nine times out of ten, we have to list it.
Are you listing it at full value or discounts? I know you’ve got investors that are sending stuff your way, but are you looking for multiple offers in some situations to help drive the interest up, so you don’t have to worry so much for the discount?
If the investor has already put in a contract with that homeowner before they send them to me, then I’m going to honor that contract, use that contract, and then use that to negotiate. A lot of the times, they may already have a contract in when I get the short sale lead. Therefore, I don’t need to list it. If it’s a homeowner who came to us directly, then I’ll do exactly what you do, I list it. I want the first offer that comes in it. I don’t want to wait for highest and best because the market’s slowing down a little bit up here. If I wait for three weeks, then my short sale will never get moving forward. I want to take the first offer I get, roll with that, get my value, now I know what the bank wants and then work from there.
I know it’s been seven years, but why did you pick short sales?
Once you do something for a long time, you figure it out. It becomes second nature now. I fell into it. I was bartending for quite a while. With those hours or late nights or late afternoons, one day I woke up and I was like, “Maybe I should do something with myself.” Oyezz had admin position available. I jumped on that and eventually got my license. About three years ago, the cofounders sold it to myself and to my two other partners. I literally fell into it.
In terms of the timeframe we talked about, it’s four to five months. Do you get a lot of people that get discouraged and walk away after they want something at a discount but they’re not willing to hang around for the discount or the deal?
For the buyer aspect, we do a pretty good job of explaining the process and where we are in the process to each buyer that we work with. That tends to alleviate the potential stress because even though it’s called a short sale, it’s not short in time. That’s a misconception that a lot of new investors or new agents will think, “It’s a short sale so we can close tomorrow.” Give me a couple months and then we can close. Knowledge is power. As long as you’re letting everybody know what’s going on in the process and what the next steps are, it usually helps. Every now and then, we’ll have a buyer that says, “I can’t wait any longer,” especially a homeowner who has to be moved out by a certain time or moved in by a certain time. We will lose those types of buyers.
This is not going to be a week process. There’s some time to it. It’s going to take some time for the banks. I still can’t believe that Wells Fargo still uses faxes. It’s crazy out there.
You get to email your point of contact like you’re a negotiator and that’s nice. If you have to send them something, you still have to fax it in three days before they even get what they want.
Let’s talk about some of the things that go into the pocket.
The main things the borrower needs to have are financials. It’s usually going to be two months of bank statements, 30 days of pay stubs and the last two years of tax returns. A lot of times, banks will want a current utility bill to show that they are living in the property and maintaining it. That will also help with the relocation incentive money. Banks still offer the incentive money to the borrowers. It’s up to $3,000.
Even across the board or just individual banks?
Across the board, it’s $3,000. It used to be $10,000 for conventional loans, but that ended back December of 2017. They don’t have that program anymore. We’ve got $3,000 across the board. Unless you have the VA loan, they only offer $1,500. Money is still better than no money and it will help you move, which is an incentive for the homeowners.
Do you ever get the banks want to offer Cash for Keys or deed in lieu to the borrowers?
They will. If a short sale is not an option anymore. FHA has this guideline to where if you’re defaulted on your mortgage and you want to do a short sale, you have to close by the 40th delinquent month. If we have a homeowner that we’re talking to and we’re four years behind. Right then and there, I know that a short sale is not an option for them if they have an FHA loan. I’ll look at their financials and see what’s going on. Usually, if they’re four years behind, things of that nature, creative financing or short sales are not going to work. They don’t have any rich uncles or they’re not going to a lottery. I will advise then you need to do a deed in lieu and if they still live in the property, the bank will offer them Cash for Keys.
If they’re 37 months behind, it takes four months to do a short sale. I will bet that lead to see who the lender is. If it’s somebody like Chase or Bank of America, I’ll say, “Let’s do it. Let’s get this done.” If it’s Wells Fargo or any other bank like Caliber or Settlers, I will most likely try anyway just because hearing their situation and wherever they’re at is very unfortunate. A lot of these lenders are bullies and they bully the seller around. Spreading some misinformation and misguiding them maybe intentionally or unintentionally. I feel bad for the homeowners. I feel like I’m an advocate for them since I know what I know, I can help them out, I’m still going to try. They’re going to know there’s a possibility that it may not work because of their delinquency. If it’s 39 months behind FHA loan, I’m going to tell them, “I’m sorry. You should probably do it either way.”
With a listing, is there a flat fee involved that’s paid by the bank or the buyers for your services?
I’ll have a listing agreement. That’s one of the parts of the paperwork too. It’s going to be yes and the seller’s lender will pay my commission and the buyer’s agent commission. It costs no money for the sellers. If they are being charged for somebody to do a short sale, that’s a scam. You’re not supposed to charge. We are not allowed to charge for a short sale, but we do get compensated by the commission.
That’s good because you get a lot of people out there charging $2,000 or $3,000 to do a short sale and not delivered on anything. That’s not very ethical. Do you have a story that absolutely warms your heart where you were able to pull a rabbit out of a hat?
It’s an elderly couple. They’re very elderly, they have no cell phones and they have a landline. There’s nothing I can give to them electronically to sign or email them. They don’t have that. It’s one of those where I have to go over there every time and meet with them. The husband has dementia. It is very sensitive for the woman to have to be able to handle all of this plus dealing with her husband. She didn’t want the burden of the short sale and selling the house, we made it as easy as possible. We got the approval letter and she was very ecstatic. I’m very happy to help. People who want to be helped, they get help, and they’re so appreciative, that’s what warms my heart. We did what we were going to do and they trusted in us and we came through.
I’m sure you’ve had one customer looking for help, “I don’t want to help you.” Is that true as well?
We have this one seller, and this was back in 2016. She got the $10,000 relocation money. She was making more money off of her defaulted mortgage and not paying her mortgage for three years. She’s got the $10,000 from not paying the mortgage in three years. She was making more money than I was on the commission. Not that that matters, but I’m trying to give you guys the full story. We were closing in February and you can’t get the incentive money until we close. She was like, “February is too cold. I can’t close in February. We need to push out to May.” I’m like, “I’m sorry. What? That’s not how things work.” With some of those people, you’re like, “Okay.” You have to put the bad cop hat and be like, “This is how it has to be.” In the approval letters, you’re given an expiration date that you have to close by. Hers was the mid-February and she didn’t want to move. She was like, “It’s too cold.” I’m like, “You’re jeopardizing $10,000 right now.”
Do you see that banks are more flexible with the negotiations when one of the properties needs a lot of work or was it clean property or it just varies?
It does vary. If the property doesn’t need a lot of work, the value is going to come and go. They’re going to understand. They’re going to see the BPO report, pictures, appraiser’s comments on the report. They’re going to understand why that value came in so low, versus a nice retail house. The appraisers use these comps. If it’s a retail house in Prosper, in McKinney or Frisco area, it’s going to come high regardless because everything else out there is selling high. It can bite us in the butt because if our property needs a lot of work, but all the comps around are super nice, my value is going to come high. Now, except for the high value in your crappy property, it’s going to sit on the market for a while. Basically, I have to wait until the value expires to get a new one.
How long does that take?
With FHA loans, it’s 120 days. There are little tricks that you can try to do like value dispute, but FHA are sticklers. They like to stick to their values. Every now and then, I can get them to come off of it. For the most part, if we get stuck with a value, we’re stuck.
Would you say the majority of the banks that you’re dealing with your short sales are the bigger banks or do you often get some smaller or little regional banks?
It’s very much a mix. We have SPS, Auckland, Bank of America, Wells Fargo, Chase and then we have little banks like Caliber and Bayview.
Caliber’s popped up over the last couple of years. I wouldn’t be surprised to see more short sales from them because they’re doing a lot of non-prime mortgages now.
Caliber is fast. You can do a short sale in 45 days with Caliber.
You’ve been a realtor for a while and you’ve seen the market skyrocket up. You mentioned that you’re starting to see a market slow down. What’s going on in the DFW market?
I have mixed feelings. Interest rates have increased, which I don’t think have increased that much, but enough to scare people. A lot of people are renting and they don’t want to get into a mortgage. Buyers think that sellers are overpricing their houses, which they have but they’ve been getting paid. It’s a mixture of everything plus with school starting, it’s slowed down. I have about seven properties right now that I have active on MLS with no offers. I haven’t had that probably in three years. Usually, if I list something, I get an offer. I’m a sitting duck right now with some of my properties. You have to change with the time. If the market is slowing down, then I’m going to have to be creative to see how we can get these values down to where a buyer is going to be enticed and want to buy it so I can have my homeowner.
In Austin, it’s been a crazy market too. I always worry about when I start seeing stuff on the MLS that says, “Appraise value will not dictate the sales price.” What’s probably the best advice you can give investors that are chasing short sales?
I don’t think that you chase short sales. You stumble across them. If you can’t do anything with the lead, it’s not trash. It’s a short sale. Send it over and we can do something with it. We will definitely do that. Send it over, either way, we’ll get a lead every now and then to where there’s a little bit of a spread. We’ll send it back to the investor and say, “You should probably wholesale this. Do something else. Do a Sub2 because they’re not that far behind.” Send it over and we’ll look at it regardless. We’ll let you know if it’s better to be a short sale or it could be something else.
I have even more respect for you when you started throwing out Sub2 deals and wholesaling because a lot of real estate agents don’t understand the investing aspect about that. Kudos to you on that. That’s really helpful. A lot of people believe in, “It’s outside the box. It must be illegal.”
Sub2s can help the homeowners’ credit. For me, I’m here to help the sellers. Whatever that’s going to be, whatever the best case is for them to do, that’s what we need to do. If they send it over, it’s not a Sub2 and it’s not a good wholesaling deal, we’ve even helped homeowners do loan modifications. We say, “You don’t need to do a short sale, you would be a good qualification for a loan modification.” Then they get to keep their house, which is ultimately what they always want to do. It’s in the best interest of the other person.
How do you see that happen? What’s the timeframe for a loan modification to get accepted from the banks that you’re dealing with?
I haven’t done one in a while. Technically, I’m not allowed to do modifications because I’m modifying the loan and I’m not a licensed loaner. I don’t do them that often. I did one about months ago and it took about three months to finally get all the paperwork back to the bank, notarized, signed and all the good stuff.
That’s pretty normal. We used to try to get it done a little bit faster but we’re a little bit more of a boutique firm. We have a little more flexibility with the mortgage that we buy. We buy them at a discount. We’re not the originator. We can often come up with a pretty fast win-win versus if you’re the originators. They’ve got to write off everything they can before they can take a do loan mod for the most part. Do you love what you’re doing?
I do. I like helping out the homeowners and beating up the banks. I call myself a Glorified Babysitter because I’m babysitting the banks. Sometimes I even have to tell them how to do their jobs, but that just comes from my experience. If it gets the job done, let’s do it.
We used to see that happen a lot with the negotiations people. People come in and go out. Do have people that have been there for a long time that you’re working with at specific banks or no?
I know that you have done short sales before or worked on the mortgage side. Every now and then, I used to keep a marker board because I would find a pattern of negotiators at Wells Fargo, Chase and Bank of America. I have a marker board of the five main people that I would normally deal with, like if they had children, what their birthdays were. You want to make friends with these people because they’re the ones handling your short sale and they’re processing your paperwork. Now, I talk to somebody new every day. At one point, I talked to an executive at Wells Fargo and they’re like, “We just hired new people. We train them very well and we have such a turnover that it’s hard to keep track of everything. I’m sorry if your processing is taking longer.” They told me. “We’re sorry. We don’t know what we’re doing over here because we have to hire all these new people all the time.”
We used to deal with a bank out of Florida. We get a short sale negotiator on the phone and it turns out she’s in charge of the EverHome Mortgage out of Jacksonville, Head of the Short Sale Department on the phone and she sounds like she’s smoking four packs a day. She had a rough voice. We’re negotiating this one deal and she’s like, “I agree to that.” She starts asking us, “What do you guys do?” I said, “We help people across the country. We do short sales.” She was like, “Can you help me with mine with Wells Fargo?” “We can help you with that.” She’s like, “Hang on.” You literally her stand up and say, “Everybody, I know you are all behind on your mortgage like me. I’ve got a company that can help all of us.” There were nine people in EverHome’s short sale negotiating department. We did short sales for eight of them.
They’re a mortgage company that processes short sale but they can’t process their own short sale?
Yes, because she works for EverHome Bank and all of their mortgages were with Wells Fargo or other banks besides their own company.
That goes to show how idiotic the banks can be. That you have somebody who’s working and is trained in a department, but they can’t handle their own affairs, which is the same story. That’s insane, but that’s awesome.
We were teaching this in a real estate workshop. I called her up and I offered her to come out to the event. She flew out from Tampa to Austin, spoke at the event, talked about some of the mind-numbing things that the banks are doing. I had other banks that say, “I don’t mind bleeding, but I want everybody else to bleed on this deal too.”
That’s funny that you had your story. I had a short sale that I was doing and I had a point of contact. She was talking to me and then she’s like, “Hold on one second.” You could hear her take off the recording device and she’s like, “Are you guys hiring?” We weren’t but I was like, “Yes, come in. I would love to talk to you.” She did. She came in and talked to us for a while. She said that they get to dictate how they process, when they process. If I called in and I was rude to her, she said she would literally throw my file on the floor and then she would work the next one. That’s why I said always be nice to everyone that you work with it because they ultimately have the control.
That’s the truth. We’re sending in flowers or sponsor certificates or finding out what favorite alcohol they have and send them over a bottle of whiskey or something. Most people don’t know that a bank employee can accept a gift up to $100 once a year. I went out to Miami one time and I called up a couple of the negotiators that we’re working with. I said, “I’m in town. Do you want to go to a Miami Heat game?” We went to the game and our files got processed a whole lot faster.
Mr. Cooper is down the street from us in Lewisville. Every time I drive by, I see a bunch of people outside smoking. I always thought, “Maybe I’ll take up smoking, go stand outside and meet people.”
It’s sad. If you see a lot of that, you can still see negotiators and loss mitigation experts and things like that. It’s not a fun job. What do you figure out each negotiator has? Have you ever asked somebody for files that are worked at any given point?
I stopped asking because it was upwards of 80 to 100 each.
That’s a lot of paperwork. It’s a lot of faxes with Wells Fargo. The beautiful thing is it’s all about systems. You’ve got your days down, you know on the front end, you’ve built your processes, which is kudos to you because that’s awesome. You also have to realize there’s a people factor to it too. People are good and some people are not going to be the greatest at what they do. Those that you can help, you take a lot of pride in, like that elderly couple who was in the dark ages.
Any advice for people, investors or realtors out there looking at the short sale game? I’m a big believer that we’re going to see more of those pop up here in the next twelve or 24 months. Our default rate, especially in Texas, we’re the second in the nation as far as default rates behind Florida. Part of that is down in Houston with the hurricane effect, but we had an increase over default rates over last year by an 11% increase. We hit a low and it’s starting to bounce back up there.
I would say time is of the essence. A lot of lenders are saying that they have to have 37 days prior to a foreclosure to receive the paperwork, review it and make a decision. If you’re an investor or a realtor and you’re trying to list a home or help a homeowner and you know they have an upcoming foreclosure, don’t waste time, especially since the market slowing down. You may not want to list it super high and try to get the seller the most money. You want to list it either something very reasonable or why don’t you start the short sale at the same time you are listing to property. That way you’re helping out the homeowner both ways. You always have a plan A and plan B. With the investors, it’s the same thing. Don’t wait if you know that there’s a foreclosure or a potential foreclosure, take action right away and do something.
You said that 37 days is where a lot of them start and they won’t start if it’s less than that. Are you seeing more success when they have a first and a second? Are you not seeing any second mortgages out on there right now?
Thankfully, I’m not seeing very many seconds. I probably have about 50 short sales right now and only 30 have seconds. Seconds don’t have a leg to stand on. They took that second lien position.
What’s the average of those negotiated down to about 5% or $1,500?
It depends on the type of loan. A conventional loan will pay up to 8% of the unpaid principal balance. Fannie Mae will say $6,000.
That’s good to know for those out there. We get a lot of people in the second space going to our side, “We want to buy seconds.” I’m like, “I don’t see any of it.” You proved the point there that there’s not that many out there because there are not that many guys in the second positions. It’s a big risk. You’ve been doing this long enough, do you see that banks start to make more motions to get stuff closed before the end of the year? You see them taking a bigger discount on some things?
I wish that would happen. December 2017, we were busy. In the previous year, we’ve never been busy. It depends on who your negotiator is, the type of loan you have, and what their attitude and mood is for that week and month.
How do people get ahold of you, Melody, if they’re in the DFW? Do you do short sales across the states or just up in the Dallas-Fort Worth area?
Just in DFW, but if you have something outside of that area, send it over. I do know a couple of people. One who does it nationwide and then another one who does San Antonio, Austin and Houston. Anything you got, send it over. I’m sure I’ll find someone who can help. My phone number is (972) 537-7983. If you want to shoot me an email, it’s Melody@Oyezz.com.
Melody, thank you for joining me.
Thanks for having me on.
Go out and make something happen. We’ll see you all at the top.
About Melody Medley
At Oyezz, we simplify the process of selling a house, regardless of whether you are struggling to make mortgage payments, or in a negative equity situation. We have successfully completed more Short Sales than any other Realtor in the Dallas-Fort Worth area. We pride ourselves on providing outstanding service, and making the short sale process easy for our clients. We have experience processing short sales with Bank of America, Chase, Wells Fargo, Ocwen, Seterus, CitiMortgage, Select Portfolio Servicing, Caliber Homes Loans, Ditech, Bayview Loan Servicing, PennyMac, Mr. Cooper, Carrington Mortgage, US Bank, Freedom Mortgage, HSBC, Specialized Loan Servicing, Rushmore, PNC Bank, and many other lenders.