Welcome to the Wisconsin REALTORS®Association’s Distance Learning On Demand! Distance Learning On Demand is the most convenient method available from the WRA to complete your continuing education requirement.

The course is broken into chapters varying in length from 20 to 40 minutes. At the conclusion of each chapter video, you will be required to complete a short quiz. Each chapter video must play through from start to finish or you will not be able to advance to the next section. If you do not pass the quiz, you will need to wait 1 hour to re-take the quiz. Once all the chapters and corresponding quizzes are complete, you will be able to advance to the final exam. After you pass the exam, you can print your certificate of completion. If you do not pass the exam, you will need to wait 4 hours to re-take the exam.

Here are a few suggestions for completing the courses as efficiently as possible:

1. Ensure you meet the system requirements at the location where you plan to view your videos. Requirements can be found at: www.wra.org/dlodreq

2. Close all other software applications.3. Make sure only 1 copy of the video player is open.

Accessing your videos:

1. You will be able to re-access courses via myWRA at: www.wra.org/mywra

We have addressed other questions and concerns on the Frequently Asked Questions below.

Thank you for choosing the WRA for your continuing education needs!

FREQUENTLY ASKED QUESTIONS

Can I watch chapters out of order?No, each chapter video will be locked until completed. However, you will have the ability to watch them in any order after completion.

How do I switch to a new chapter?After you complete a chapter, the next available chapter will be highlighted in green. Simply click the highlighted chapter to begin. Please note that you must complete each chapter video and quiz to advance to the next chapter.

What are quizzes?The quizzes are a required part of Distance Learning On Demand. You must complete the quizzes before advancing to the next chapter. Each chapter has a bank of two questions. To take a quiz, simply click the quiz icon. Once you’ve taken and passed a quiz, the icon will show a check mark to verify completion.

RW ADISTANCE LEARNINGW AON DEMAND

Chapters Tab

What is the difference between a quiz and exam?Quizzes are mini-exams comprised of two questions. You must complete all quizzes before taking the final exam. The exam is your final test. You can take your final exam after you’ve completed watching all chapters and have taken all quizzes. Once you’ve passed the exam you will receive your certificate.

How do I take a quiz?In the “Chapters” tab in the far right column, find a label for “Quiz.” After completing the chapter video simply click the chapter quiz icon to proceed. Each quiz includes two questions.

How do I know if I passed all quizzes?In the “Chapters” tab, far right column, find a label for “quiz.” When you have completed a quiz, a checkmark will appear in the Quiz icon. If your icon is still locked or highlighted, you still need to complete that quiz before proceeding to the next video and/or final exam.

What is the “Notes” tab for?

The “Notes” tab is a place for you to take your notes on screen without leaving the video interface. If this functionality were not available you would need to take your notes manually. These WILL automatically save for you. You may want to print your notes and attach them to the outline for future reference.

What is the “outline” tab for?The “Outline” tab is an easy way to access a specific topic in a chapter. Simply click a link in the outline and you can instantly access the corresponding content in the video. It’s perfect for accessing a topic you would like to re-watch.

Exam Tab

Notes Tab

Outline Tab

I have no volume/sound.To troubleshoot sound, perform the following steps:

1. Can you hear sounds from other Windows applications?2. Make sure the volume slider in the player is turned up.3. Access your volume control panel in Windows (Accessories, Entertainment, Volume Control) and ensure

your sound is not muted.4. Double check your speaker connection in the back of the sound card, making sure it is plugged into the

right port.5. If all tests fail and you still do not have sound either from the player or other Windows-based applications,

contact your local computer technician.

My video is stuttering, pausing and stopping. How can I fix this problem?1. It is likely you are short on bandwidth. Internet Service Providers (ISPs) can have times when traffic is at

a maximum; thus slowing your connection. The WRA provides other feed options you can access that requires less bandwidth. To drop bandwidth, use the drop down box located under “Help” in the upper right-hand corner of the Media Player. The default bandwidth is 1000kbps.

2. Press the F5 key on your keyboard to refresh the player.3. Log-out of the website, then log back in.

If after dropping bandwidth you do not see an improvement in performance, what can I try next?1. Re-test your bandwidth making sure your download speed is at least 512 Kbps by following this link:

www.wra.org/bandwidthcheck2. Try connecting to a landline. Often wireless connections do not run smoothly which causes the video to

continuously stop-and-start.3. Try switching computers to see if you get the same result

Other Problems?For other problems please call the Wisconsin REALTORS® Association at 1-800-279-1972.

Troubleshooting

Elective A Short Sales and Foreclosures: July 1, 2011 Update Please note The Residential Tenants in Foreclosure Act, codified at Wis. Stats. 704.35 and 846.35 has been repealed. The Act still applies to foreclosures commenced before July 1, 2011 but does not apply to foreclosures commenced on or after July 1, 2011. See page 5 of your course book for more information on The Residential Tenants in Foreclosure Act.

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2011-2012 Real Estate Continuing Education Program

Elective A - Short Sales and Foreclosures

During the 2011-2012 licensing biennium, Wisconsin real estate licensees must complete 18 hours of continuing education to be eligible for license renewal. To remain active, licenses must be renewed by December 14, 2012. Successful completion of the required continuing education may be accomplished by taking six Wisconsin approved courses worth three credit hours each. Licensees must take four mandatory and two elective courses and pass an examination for each course. The Wisconsin REALTORS® Association offers a total of eight continuing education courses to choose from, all of which are Wisconsin approved for license renewal requirements for the 2011-2012 biennium.

Licensing Renewal

A licensee, when submitting a license renewal application, must show completion of 18 hours of Wisconsin approved continuing education. Persons granted an original broker or salesperson license during the 2011-2012 biennium are not required to complete continuing education during the 2011-2012 licensing period. Only courses approved for 2011-2012 may be applied for credit. This course and exam qualifies for three hours of the required continuing education.

To apply for license renewal by December 14, 2012, a licensee must submit the course name, the course provider, and the date of successful completion of each continuing education course completed. At the time of renewal, licensees do not have to submit Certificates of Completion with the application. Wisconsin conducts audits of license renewals. Selected individuals will be asked to produce documentation in the form of a Certificate of Completion for each continuing education course.

Duplicate Certificates

Requests for a duplicate WRA course Certificate of Completion must be made within 60 days of completing a course. Requests for duplicate certificates made more than 60 days after completion must be in writing, accompanied by a $10 fee, and submitted to the Wisconsin REALTORS® Association, 4801 Forest Run Rd., Suite 201, Madison, WI 53704-7337. Individuals may print duplicate certificates free by logging into myWRA at www.wra.org.

Additional Resource

Answers for questions presented in this outline are available at http://www.wra.org/Education/Online/RECE/Real_Estate_CE_Exam_Practice_Questions/. Select the biennium followed by the PDF document for the desired course.

Special acknowledgement to the WRA Legal Department for the use of various Legal Updates, Hottips, and other WRA co-authored and sponsored publications.

The information and materials contained in this product are provided exclusively for educational purposes and are solely intended to be statements of general legal principles. The information and materials are not to be construed, interpreted,

relied upon or used as legal advice in any fashion, including but not limited to, use in litigation, arbitration, ethics matters or other administrative proceedings. Individuals seeking legal advice should obtain private legal counsel and should not rely upon the

information and materials contained herein.

Copyright 2011 by

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Elective A - Short Sales and Foreclosures

I. A Changing and Challenging New Marketa. Mortgage challenges

i. In the last few years, an increasing number of individuals have been faced with the inability to meet payment obligations under existing mortgages.

ii. This has lead to increases in:1. Mortgage foreclosures;2. Individuals seeking to complete loan modifications;3. Short sales; and4. REO (real estate owned) properties.

b. Wisconsin licensees face many challenges in the current market including:i. Addressing the risks of working with owners in jeopardy; ii. Assisting buyers in locating short sale property;iii. Guiding buyers through the often confusing and cumbersome process of closing

on a short sale property; and iv. Working with sellers either already in the foreclosure process or when foreclosure

proceedings are imminent. c. Goals of the course

i. Outline general principles and the legal process of a Wisconsin foreclosure action.ii. Provide licensees with an understanding of available options for distressed sellers.iii. Gather a better understanding of servicing short sales to increase successful

closings.iv. Familiarize licensees with the short sale process under the Home Affordable

Foreclosure Alternatives (HAFA) program.v. Address strategies and tips when working with REO transactions.

II. The Foreclosure Process in Wisconsina. Why should licensees be familiar with the Wisconsin foreclosure process?

i. Licensees need to understand the timelines involved in foreclosures and short sales.

ii. Licensees need to understand the role liens play in the foreclosure process. b. Foreclosure defined

i. Foreclosure is the legal proceeding to terminate a borrower’s interest in property, instituted by the lender, either to gain title or force the sale of the property to satisfy the borrower’s unpaid debt.

ii. It is the process by which a bank takes a property from a defaulted borrower. c. Wisconsin foreclosure law

i. Foreclosure law is state specific.ii. The process for a mortgage foreclosure is established by Wis. Stat. Chapter 846.

d. Liens and the foreclosure processi. Liens are a claim or a charge on a property for payment of some debt, obligation,

or duty. ii. Liens are not ownership interests in the property. iii. Liens may originate from:

1. Mortgages;2. Taxes;3. Judgments;4. Unpaid construction costs;5. Child support obligations;6. Condominium or homeowner association fees;7. Commercial broker commissions; and8. Uniform Commercial Code (UCC) financing statements.

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e. The mortgage foreclosure process in Wisconsini. A mortgage foreclosure timeline is provided in the appendix.ii. Period of nonpayment

1. This is the initial period where the owner fails to make the required monthly mortgage payments.

2. Most creditors will wait between 90 – 180 days before filing a foreclosure action against the owner.

3. During this time, the mortgage holder will attempt to communicate options and work with the owner to correct the delinquency.

iii. Notice of default1. During the period of nonpayment, owners will receive a formal notice of default

of the terms of the note or mortgage. 2. The notice is accompanied by a reinstatement payoff amount.

a. A reinstatement payoff amount is the amount necessary to bring the account back into good standing.

b. This will include all back payments, interests, and penalties to date. c. It is not the entire balance of the loan and differs from the owners

redemption rights in the foreclosure process. iv. Summons and complaint

1. If the mortgage holder has been unable to reach a resolution with the owner or has not received a reinstatement payment, the mortgage holder files a formal summons and complaint in circuit court beginning the legal proceeding.

2. The summons and complaint must be properly served on the defendant (the defaulting property owners) according to Wis. Stat. § 801.10.

3. The summons notifies the defendant that a lawsuit has been filed and provides instructions to the defendant for filing an answer to the complaint.

4. Most defendants receive only 20 days to file an answer to the complaint. 5. The complaint will allege the factual basis for the foreclosure along with

important information such as: a. Notice of the acceleration clause;b. Entire balance amount due;c. Type of property;d. Whether property is currently owner-occupied, leased, or abandoned;e. Request for deficiency judgment or waiver of deficiency; andf. Requested redemption period.

6. The foreclosure complaint may list parties in addition to the defaulting property owner. a. Additional parties may include a second mortgage holder, a junior lien

holder, and spouses. b. The additional parties will be named in the complaint by the foreclosing

party because the foreclosing party is asking the court to foreclose against all defendants whose rights, titles, and interests in the property are subordinate to the plaintiff’s interests.

c. The complaint will usually state named defendants’ interests in the property and whether those interests are superior or subordinate to the plaintiff’s claim.

d. A foreclosing party who fails to name an inferior lien holder as a defendant in a case risks preserving that inferior lien on the property at the conclusion of the foreclosure process.

v. Filing of a lis pendens1. A lis pendens is a notice of a pending lawsuit. 2. It is filed at the register of deeds office in the county where the property is

located. 3. It is filed at the same time as the summons and complaint.

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4. Recording a lis pendens gives notice to subsequent purchasers or lien holders that a foreclosure lawsuit against the property is pending and their interests may be barred.

vi. Answer and counterclaims1. Owners may have good reasons why they have been unable to meet their

payment obligations under the loan. 2. Those reasons are often not valid legal defenses to a foreclosure action. 3. Defenses to a foreclosure action may include:

a. Improper accounting or misapplied payments;b. Fair Debt Collection Practices Act violations;c. Truth in Lending Act violations;d. Real Estate Settlement Procedures Act (RESPA) violations;e. Predatory lending issues;f. Failure to comply with government programs such as the Home Affordable

Modification Program (HAMP) or the Home Affordable Foreclosure Alternatives Program (HAFA); and

g. Equitable defenses (unclean hands/ unconscionability).4. Licensees are not permitted to provide legal advice on the foreclosure process

or a property owner’s rights in the proceedings. 5. Advice on the foreclosure process or a property owner’s rights provided by

licensees would constitute the unauthorized practice of law and could create liability for the licensee and the licensee’s employing broker.

6. Property owners facing a foreclosure action should be referred to private legal counsel or organizations such as local Legal Aid Societies.

vii. Default judgment or summary judgment1. Most defendants fail to appear or fail to present a valid defense in foreclosure

actions. 2. If a defendant fails to appear or does not present a valid defense, the plaintiff

(the mortgage holder) will obtain a judgment of foreclosure. 3. The court’s judgment of foreclosure will establish:

a. Accelerated amount due, which continues to incur costs and interest throughout the process;

b. The redemption period; and c. Whether the plaintiff may seek a deficiency judgment after the sale of the

property. 4. Redemption period

a. A redemption period is the time the court establishes for a debtor to pay the balance, costs, and attorney’s fees due under the debt obligation.

b. Homestead property redemption periodsi. One year with deficiency judgment.ii. Six months without deficiency judgment.

c. Investment property redemption periodi. Six months with deficiency judgment.ii. Three months without deficiency judgment.

d. Abandoned property redemption periodi. Two month redemption period.ii. Abandoned means that the defaulting property owner has relinquished

possession or control of the premises but not equity or title. viii. Sheriff’s sale

1. A sheriff’s sale is held after the redemption period has run. 2. The sheriff’s sale is usually held at the county courthouse and is open to the

public for bidding and observing. 3. Notice of a sheriff’s sale must be published once a week for six weeks prior to

the sale and must be posted in public places.

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4. A high bidder at a sheriff’s sale must have 10% of the purchase price down at the time of the sale with the remainder due within 10 days of confirmation of the sale.

5. Problems associated with property purchased at a sheriff’s sale may include:a. A buyer’s inability to conduct a physical inspection of the property;b. Superior or missed liens can cloud title; or c. The property may be inhabited by owners or tenants presenting the new

property owner with the problem of removing the occupants of the property. ix. Confirmation hearing

1. The confirmation hearing is for the court to confirm the sale of the property. 2. Confirmation hearings

a. Hearings occur after the sheriff’s sale.b. The parties return to court for a judicial confirmation of the sale. c. The court reviews the procedures used for the sheriff’s sale and decides if

the bid for the property is a fair value. d. The judge has discretion to confirm or deny the bid price.

i. Bids can be denied if the price “shocks the conscience of the court.” ii. If the bid amount is not enough to satisfy the judgment amount and

confirmation of the sale will result in a deficiency judgment, there is no presumption that the bid amount constitutes fair value.

iii. The court will not confirm a sale that will result in a deficiency judgment until the court is satisfied that the bid amount constitutes fair vale.

e. The court will receive and approve a sheriff’s deed to transfer the property to the new owner.

f. Upon transfer of the deed, the foreclosed owner no longer has the right to sell or redeem the property absent some kind of judicial intervention.

g. The court may issue a Writ of Assistance.i. The writ will authorize the sheriff’s department to remove any

occupants from the property.ii. The new property owner is not entitled to remove occupants without the

assistance of the court. h. Eviction timelines will depend on judicial discretion in combination with

state and federal law. 3. Property owners in Wisconsin can:

a. Sell the property up to the confirmation hearing. See Security State Bank v. Sechen, 2005 WI App 253.

b. Redeem the property up to the confirmation hearing. See Osterberg v. Lincoln State Bank, 2006 WI App 237.

4. Case Study: Forfeiture of deposit at sheriff’s sale. Chase Home Finance v. Pearson, (No. 2008AP2591-FT, Ct. App. 2009- unpublished). a. Chase foreclosed on a property later sold “as is” at a sheriff’s sale. b. Richard Pearson had the highest bid at $265,000 and was required to pay

10% of the purchase price to the sheriff with the remaining balance due no later than 10 days after the confirmation of the sale.

c. Failure to pay the balance would result in forfeiture of the 10% deposit. d. At the confirmation hearing, Pearson asked the court not to confirm the

sale, to order a new sheriff’s sale and to refund his entire deposit. e. Pearson said that after the sale, he discovered problems with the property,

noting that the home was poorly constructed, was severely damaged, had an exposed 2-foot square opening in an exterior wall where an air conditioner had been removed, had an estimated value of $140,000 and “possibly could be a complete knockdown.”

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f. Chase responded that Pearson could not get out of the sale because he purchased the property “as is” and “bore the risk of purchasing at sheriff’s sale.”

g. The circuit court did not confirm the sheriff’s sale of the property and ordered the property to be “re-sold ASAP.”

h. Chase argued that Pearson should forfeit the deposit as the cost of canceling the sale.

i. At the resale confirmation hearing, the court awarded 10% of Pearson’s deposit to Chase for the resale costs and returned the remaining portion to Pearson.

j. Chase appealed. k. The Wisconsin Court of Appeals held that the circuit court acted properly

in not confirming the sale to Pearson and by ordering the resale of the property.

l. Under Wis. Stat. § 846.17, a purchaser forfeits his or her deposit if the remainder of the purchase price is not paid within 10 days of the confirmation of the sale.

m. If the sale is not confirmed, the purchaser is entitled to return of the deposit.

n. The Court of Appeals found that since the trial court did not confirm the sale to Pearson, the deposit was properly returned and that by receiving 10% of the deposit, Chase was actually awarded more than they were entitled to under the statute.

5. Practice tips:a. A buyer should be aware that it is a risk to purchase property at a sheriff’s

sale without prior viewing or inspection of the property. b. A buyer with questions about his or her rights in a sheriff’s sale or with the

purchase of “as is” property should be referred to an attorney for advice. f. A tenant’s rights in a foreclosure action

i. Recent changes in state and federal law have resulted in additional protections for tenants of properties in foreclosure.

ii. Wis. Stat. § 704.35 Residential rental property in foreclosure.iii. Protecting Tenants in Foreclosure Act

1. 2009 federal law providing for increased notice to tenants and extended periods of permitted occupancy in the foreclosed property.

2. Provisions of the act will sunset on December 31, 2014. 3. The provisions were set to sunset on December 31, 2012 but the Dodd-Frank

Wall Street Reform and Consumer Protection Act extended the protections with a sunset date of December 31, 2014.

iv. Landlord’s duties1. Landlords have a duty to disclose pending foreclosure actions against the

property to prospective tenants under Wis. Stat. § 704.35(1). 2. If the lender has already obtained a foreclosure judgment against the landlord,

the landlord’s notice to the tenants must also state when the redemption period expires.

v. Foreclosing party’s duties1. Banks, mortgage holders, or other foreclosing parties have a duty to inform

tenants of the following under Wis. Stat. § 846.35:a. Notice that a foreclosure action has been filed against the property within 5

days of the foreclosing party’s filing of the foreclosure action; b. Notice that a judgment of foreclosure has been entered within 5 days of the

judgment being entered; and c. Notice containing the date and time of the judicial confirmation hearing.

2. Notice should be personally served upon the tenants or sent by certified mail.

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3. If the foreclosing party does not deliver notice as required, a tenant could sue the foreclosing party for $250 and reasonable attorney’s fees.

vi. Tenant occupancy of foreclosed property1. Wis. Stat. § 846.35 Protection for tenants in foreclosure actions.

a. Tenants can remain in the property for an additional two months after the month in which the judicial sale is confirmed.

b. Tenants may be able to use security deposit funds for the last month’s rental payment.

2. 12 USC § 5220 - Effect of foreclosure on preexisting tenancy. a. Most tenants can stay until the end of the lease term. b. Tenants in a month-to-month lease or other periodic lease are entitled to

receive a 90-day notice to vacate the property. vii. Additional information is available from the Tenant Resource Center (www.

tenantresourcecenter.org). g. Practical foreclosure tips

i. Licensees must ask :1. Where are clients in the foreclosure process and is there sufficient time to

attempt a short sale of the property? 2. Should this client be referred to legal counsel? 3. Should this client continue to communicate with the lender to try to avoid

completion of the foreclosure process?ii. Brokers may have office policies regarding when licensees can list properties in or

facing foreclosure action.

III. The Wide and Wild World of Short Salesa. Alternatives to foreclosure

i. Licensees should not provide legal or tax advice but licensees can inform prospective clients about potential alternatives to foreclosure.

ii. Refinance1. Depending on current interest rates, individuals may be able to refinance

debt obligations to a new loan with lower interest rates and a smaller monthly payment.

2. A property owner may be able to refinance by obtaining a conventional loan. 3. A property owner may qualify for assistance through government refinancing

programs created by the Making Home Affordable Program. iii. Loan modification

1. Loan modification by the lender is an agreement between the borrower and mortgage holder to modify some terms of the original agreement.

2. Modification may include changes in interest rates, changing from a variable to a fixed interest rate, or adding missed payments to the end of a loan for a larger monthly payment.

3. Modification may be done through a lender’s conventional financing options or through a government modification program created by the Making Home Affordable Program.

iv. Sale with additional funds provided by seller1. A seller facing foreclosure may be reluctant to use reserved assets in savings

or checking accounts to address impending foreclosure problems. 2. Many lenders will not consider a short sale when a seller retains assets

elsewhere that could be allocated to address the mortgage deficiency. v. Short sale

1. Short sale is the sale of a property where the proceeds from the sale will not satisfy all of the liens on the property and closing expenses, including a broker’s commission.

2. A seller facing a short sale is referred to as being “upside down” in the

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property because if sold, the seller would still owe more on the property than is expected to be realized from a sale.

3. A seller attempting a short sale will have to work with all lien holders to get them to accept less than the lien amount and release the lien on the property so that clear title can be given to the new buyer.

vi. Deed in lieu of foreclosure1. Property owners can give the property back to a mortgage holder via a deed in

lieu of foreclosure. 2. In exchange for receipt of the deed, the mortgage holder will release the seller

from the mortgage debt. 3. Mortgage holders generally require that the seller try to sell the property for its

fair market value for at least 90 days before considering this option. 4. A deed in lieu of foreclosure may not be an option if there are second

mortgages or other liens on the property due to title issues created by the additional liens.

vii. Bankruptcy1. Filing for bankruptcy does not terminate or dismiss a foreclosure action. 2. A person filing for Chapter 7 bankruptcy is asking for discharge of debts.

a. Filing for a Chapter 7 bankruptcy often stalls or stays the foreclosure proceeding until the lender can get the bankruptcy judge to lift the stay order.

b. It does not terminate or dismiss the foreclosure action. 3. A person filing for Chapter 13 bankruptcy is asking for a time to reorganize

finances and debts. a. In a Chapter 13 bankruptcy, any arrears in mortgage payments will be

added to other debts that are consolidated in the bankruptcy proceeding. b. Moving forward, the owner will need to make the regular mortgage

payments along with the payments required by the reorganization plan. 4. Individuals filing for bankruptcy must undergo credit counseling before

or within five days after filing the bankruptcy petition and file a certificate demonstrating completion of the counseling.

viii. Allow the foreclosure 1. Some sellers will want to ignore the impending foreclosure and stay in the

home as long as possible. 2. The foreclosure process and subsequent eviction can take a substantial length

of time and some owners choose to wait out the process and remain in the home.

b. Listing considerations in short salesi. Listing agents must get a clear picture of outstanding liens and an estimated value

on a property before proceeding with the listing. ii. When determining whether to take a listing in distress, a listing agent should

prepare a net sheet on the property that details the estimated proceeds and expenses.

iii. Agents should also complete the WRA – QST Listing Questionnaire Regarding Title to prompt the seller to identify potential title issues not evident from examining recorded documents. 1. A WRA – QST Listing Questionnaire Regarding Title is included in the

appendix. 2. An electronic copy of this form is available in zipForm.

iv. Listing agents should verify lien information on a property with a “search and hold” by a title company to see what liens do appear on record.

v. Sellers must understand the process of a short sale as well as what documentation and evidence of hardship a lender will require prior to permitting the short sale.

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1. Hardships may include:a. Job loss;b. Medical issues and expenses;c. Divorce; ord. Extensive damage to a property without insurance.

2. A decline in property value is not, by itself, evidence of hardship. vi. Sellers must review mortgage agreements and advise the listing agent of any

prepayment penalties that exist in the agreement. vii. If the seller is already in a foreclosure action, the listing agent must evaluate the

situation to determine if there is enough time to market the property and close on a short sale before a confirmation hearing.

c. Listing contract provisions for short salesi. A licensee listing a short sale property should use a listing addendum such as the

WRA – SSL Addendum SSL to the Listing Contract – Short Sales.ii. The WRA – SSL addendum addresses and discloses the unique challenges and

characteristics of a short sale not addressed in a standard listing contract. iii. An electronic copy of this form is available in zipForm. iv. The WRA – SSL defines a short sale:

v. Tax consequences1. Sellers considering a short sale must understand the income tax liability that

may be incurred due to the amount of debt forgiven. 2. Licensees cannot provide tax advice. 3. A seller in a short sale may qualify for an exclusion of income incurred due to

the debt forgiven under the Mortgage Forgiveness Debt Relief Act of 2007. a. The Mortgage Forgiveness Debt Relief Act of 2007 is scheduled to sunset

on December 31, 2012. b. The tax exclusion under the Act only applies to mortgage balances on

principal residences. c. Vacation homes and commercial or investment properties do not qualify for

the exclusion under the Act. d. The exclusion applies only to the discharge of debt incurred acquiring,

constructing, or substantially improving the residence. e. Amount of debt excluded is capped based on the filing status of the

taxpayer. i. Joint filers: $2,000,000ii. Single filers: $1,000,000

f. Sellers should be referred to tax preparers for determining available income exclusions for forgiven debt.

vi. Credit rating consequences1. Sellers considering a short sale must understand the consequences to credit

ratings from proceeding with a short sale.

2. Relief from outstanding mortgages in the form of loan modifications, short sales, or deeds in lieu of foreclosure will have an impact on a seller’s credit score.

3. Loan modifications can reduce credit scores by as many as 100 points. 4. Short sales and foreclosures can reduce credit scores by as many as 175-300

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points. a. The impact of a short sale will depend upon the number of missed

payments, how forgiveness, if any was reported, and other financial circumstances.

b. Individuals who proceed with short sales may be prevented from obtaining federally insured loans from the Federal Housing Administration (FHA) and the Veterans Administration (VA).

c. Individuals who proceed with short sales may have to wait up to two years to obtain conventional loans backed by federal programs like Fannie Mae or Freddie Mac.

vii. Documentation necessary for a short sale application1. The short sale application process is paper driven. 2. To help facilitate the sale, sellers must make sure all required documents are

received by the loss mitigation department. 3. Documents include:

a. Hardship letters;b. Verification of employment or proof of unemployment;c. Financial statements;d. Tax returns (2 years);e. Cash flow records; andf. Personal budget information.

viii. Preparing a comparative market analysis1. Licensees will also need to prepare an accurate and complete comparative

market analysis (CMA) for submission to the lender. 2. The CMA should address the following:

a. Whether the market is increasing or decreasing;b. Provide information on current property inventory; andc. Whether the property is in need of repair.

i. If the property is in need of repair, that claim should be supplemented with inspection reports and contractor quotes for repairs.

ii. A claim that the property is in need of repair can be supplemented with photos or additional documentation to substantiate the claim.

ix. Authorization to market property as a short sale1. Licensees should get seller authorization to market the property and disclose

that seller is willing to engage in a short sale transaction. 2. Even if the seller does not authorize disclosure of the potential for a short sale,

the licensee may have to disclose this as a material adverse fact. 3. Whether the possibility of a short sale, foreclosure, or bankruptcy needs to be

disclosed as a material adverse fact is a judgment that only the licensee can make after considering all the facts and circumstances in the transaction.

x. Lender approval and broker liability protections1. The WRA’s Addendum SSL informs sellers of the challenges involved in

receiving lender approval of a short sale.

2. The SSL also provides disclosure to sellers regarding a broker’s role in approval of the short sale.

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xi. Working with a lender’s loss mitigation department1. Sellers should:

a. Contact a lender’s loss mitigation department early in the short sale process to determine what documentation the department is going to require for a successful transaction.

b. Document all contacts with the department including the name and other information of lender representatives.

c. Obtain direct numbers of lender representatives involved in the sale to minimize redundancies in the process such as having to resubmit documentation.

d. Attempt to verify lender receipt of any submitted documentation. e. Strive for complete documentation because any missing documentation is

going to delay the transaction. f. Index the pages of documents submitted with the seller’s name, loan

number, and page number. 2. Licensees should help sellers understand this process and urge sellers to keep

organized and clear records to facilitate the transaction. xii. Commission issues

1. If a seller cannot negotiate with lenders or lien holders to permit the seller to retain an agreed upon commission for the listing broker, the seller may ask the broker to reduce or postpone receipt of the commission to minimize the seller’s shortage.

2. Licensees cannot allow a deficient commission payment to stop a transfer or a closing.

3. If a licensee becomes aware that his or her full commission will not be paid as a result of the lender’s terms for the short sale, the licensee may not stop the seller from transferring the property and proceeding with the closing of the transaction.

4. MLS policies generally state that a listing broker who will receive a 0% commission because of a lender’s approval of a short sale does not have to pay commission to the selling agent as a co-broke if the listing broker cannot obtain commission through good efforts.

5. MLS may have policies regarding commissions subject to reduction as a result of a court order or lender decision.

6. The policy can provide notice to selling brokers that commission may be an issue in the transaction and how a reduction of commission will be allocated if the court or the lender causes a reduction in the commission.

7. A listing broker has little if any means to predict potential reduction or method by which a lender reaches approval of the terms of a short sale.

xiii. For more information:1. About transactions involving distressed sellers, see the WRA’s March 2009

Legal Update “Working with Distressed Sellers” available at http://www.wra.org/Legal/Legal_Updates/2009/lu0903.asp.

2. About bankruptcy basics, go to www.uscourts.gov/bankruptcycourts/bankruptcybasisc.html and www.wiwb.uscourts.gov/Bankruptcy_Info.htm.

d. Drafting an offer to purchase for a short sale i. Licensees should include an Addendum SSO to the Offer to Purchase – Short

Sale or a similar document that incorporates the following provisions in the offer. ii. An electronic copy of this form is available in zipForm.

1. A short sale statement.a. A statement that the transaction will be a short sale;

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b. The price in the offer is not enough to pay off liens and encumbrances and provide clear title to the buyer; and

c. The lender must approve a short sale wherein the lender will release the mortgage lien for an amount less than the balance due from the seller.

2. A lender approval contingency.a. The WRA’s Addendum SSO to the Offer to Purchase – Short Sale includes

a lender approval contingency.

b. Alternatively, a listing broker may provide the preferred lender approval contingency language from the loss mitigation department.

c. A broker working with a buyer should ask the listing broker if such provisions are required by the lender.

d. Features of the lender approval contingency include:i. Contingent upon lender approval of sale; ii. Specify how and to whom lender’s approval will be given; and iii. That seller may promise to promptly submit an accepted offer and any

other documentation required by lender. e. Buyer may want to include a deadline for obtaining lender approval that

permits a buyer to withdraw an offer and receive a return of earnest money if the seller does not receive lender approval by the specified deadline.

3. “As is” salesa. The WRA’s addendum SSO provides a way for buyer to incorporate into

the offer that the offer is for the property in “as is” condition. b. The language in the provision serves as a warning to a buyer that by

engaging in an “as is” sale, the buyer is responsible for determining the condition of the property and including any desired contingencies and inspections as part of the offer.

c. A buyer can draft a contract for an “as is” property and include a home inspection contingency.

d. “As is” sales are legal.e. “As is” sales often mean:

i. A seller will not complete a condition report;ii. A buyer is responsible for determining the condition of the property; or iii. A seller will not cure the defects.

4. Deadlines run from lender approval, not acceptancea. The Addendum SSO permits a buyer to incorporate deadlines into an offer

that run from lender approval of the sale rather than seller acceptance.

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b. Deadlines running from the date of approval by lender may put buyer in an accelerated timeframe for completion of contractual obligations.

c. Deadlines running from acceptance may force a buyer to pay for home inspections, testing, and appraisals and subsequently have a lender not approve the buyer’s offer or elevate another offer.

d. When writing an offer, a buyer must weigh the pros and cons of each deadline scenario.

5. Deadlines for lender approval a. The Addendum SSO permits a buyer to make the offer subject to a

deadline for lender approval.

b. This can protect a buyer from becoming mired in a lengthy transaction and permits a buyer to determine how long the buyer is willing to wait for approval from a lender.

IV. Making Home Affordable Programsa. Making Home Affordable

i. The Making Home Affordable Program is part of the federal government’s efforts to stabilize the housing market and help struggling owners get relief and avoid foreclosure.

ii. Under the Making Home Affordable Program, the federal government launched a number of initiatives to provide distressed owners with both counseling and programs designed to assist owners in keeping their homes or provide distressed owners with alternatives to foreclosure.

b. Home Affordable Refinance Program (HARP)i. Designed to give owners with loans owned or guaranteed by Fannie Mae and

Freddie Mac an opportunity to lower monthly loan payments through refinancing of the loan.

ii. HARP is limited to loans for 1-4 family properties used as primary residences. iii. The loan must be owned or guaranteed by Fannie Mae or Freddie Mac. iv. The borrower must be current on mortgage payments.

1. Current means not more than 30 days late on a mortgage payment in the last 12 months.

2. If the mortgage has been held for less than 12 months, current means the borrower has never missed a payment.

v. The amount due on the mortgage must be less than 125% of the home’s value. c. Home Affordable Modification Program (HAMP)

i. Designed to provide financial relief to owners by modifying their current loan obligations.

ii. Current eligibility requirements are:1. The property is the owner’s principal place of residence; 2. The mortgage loan is a first lien mortgage originated on or before January 1,

2009; 3. The mortgage is delinquent or mortgage default is reasonably foreseeable; 4. The owner demonstrates hardship; 5. The current unpaid principal balance is equal to or less than $729,750; and6. The borrower’s total monthly mortgage payment exceeds 31% of the

borrower’s gross income. iii. For purposes of calculating a mortgage payment to compare to a borrower’s gross

income, mortgage payments consist of:

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1. Principal;2. Interest;3. Taxes;4. Insurance; and5. Owner’s association dues.

iv. HAMP requires borrowers to enter into a trial period plan before receiving a permanent modification.

v. If the owner fails to qualify for the HAMP program or fails to make the payments under the trial plan, the HAFA program might be available.

d. Home Affordable Foreclosure Alternatives Program (HAFA)i. Designed to provide distressed owners with alternatives to foreclosure including

short sales and deeds in lieu of foreclosure. ii. Mortgage loan servicers that participate it the Home Affordable Modification

Program (HAMP) program must implement HAFA policies. 1. HAFA serves as a complementary program to HAMP by providing an

alternative for borrowers who are HAMP eligible but unable to keep the home. 2. Eligibility is determined using information previously collected in evaluating the

owner’s eligibility for loan modification under the HAMP program. 3. Mortgage servicers may request updated financial information from

applicants when evaluating eligibility for HAFA in case the applicant has experienced changed circumstances between the HAMP and HAFA eligibility determinations.

4. Borrowers may receive pre-approved short sale terms before listing the property (including the minimum acceptable net proceeds).

5. Requires borrowers to be fully released from future liability for the first mortgage debt.

6. Provides applicants with the following financial incentives:a. $3000 for borrower relocation assistance;b. $1500 for servicers to cover administrative and processing costs; andc. Up to $2000 for investors who allow a total of up to $6000 in short sale

proceeds to be distributed to subordinate lien holders on a one-for-three matching basis.

7. HAFA loan servicers are prohibited from requiring a reduction in real estate commissions agreed upon in the listing contract as long as the commission is not greater than 6% of the sale price.

iii. HAFA procedures1. Servicers will have to determine if a borrower is eligible for a HAFA offer and

whether a short sale or a deed in lieu of foreclosure is appropriate. 2. If a short sale agreement is prepared for the borrower, it will contain

information regarding what the lender will accept for a list price or net sale proceeds and will set a maximum for closing costs.

3. Both the seller and the listing agent must understand the terms of the short sale agreement.

4. The seller and listing agent must return the short sale agreement with a copy of the listing contract and information on liens on the property within 14 days of receipt of the short sale agreement.

5. A HAFA short sale agreement letter to the seller is included in the appendix. 6. The listing agent is not a party to the agreement between the lender and

the seller but the listing agent must sign the short sale agreement and acknowledge the following:

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7. Elements in a standard short sale agreement between a seller and a lender include:a. Termination date;b. Listing with practicing broker;c. Approved list price or net proceeds;d. Maximum closing costs;e. Real estate commission;f. Payment of third-party vendors;g. Financial information authorization;h. Mandatory listing contract language;i. Arm’s length transaction: no commission to the seller;j. Mandatory offer language;k. First lien liability release;l. Moving expense incentive;m. Subordinate lien release;n. Tax and credit score consequences;o. Monthly payments until closing;p. Foreclosure on hold; andq. Cause for termination.

8. The short sale agreement must give the seller an initial period of 120 days to sell the home with permissible extensions of up to 12 months.

9. A seller who receives an offer that meets the short sale agreement requirements has three business days to submit a request for approval of short sale (RASS) to the servicer, along with a copy of the offer to purchase and all addenda, and a copy of financing pre-approval or a loan commitment from the buyer.

10. Within 10 business days of receipt of a RASS and all the required documents, the servicer must indicate its approval or disapproval of the proposed sale by signing the appropriate sections of the RASS and returning the document to the seller.

11. Generally, the servicer must approve the RASS if the net sale proceeds available for payment equal or exceed the minimum stated in the short sale agreement.

12. Servicer denials must indicate why the RASS was not approved. 13. The servicer may require closing to take place within a reasonable period after

approving the RASS, but no sooner than 45 days from the date of the contract unless the seller agrees otherwise.

14. The servicer must release its first mortgage lien within 10 business days or earlier if required by local law.

e. Second Lien Modification Program (2MP)i. Designed to provide financial relief by lowering payments on second mortgages. ii. The first mortgage must have been modified under the HAMP program. iii. The owner’s loan obligation must have originated before January 1, 2009. iv. The owner must owe at least $5000 with monthly payments greater than $100. v. Not as many mortgage servicers are enrolled in the program compared to the

number of mortgage servicers participating in the HAMP and HAFA programs.

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vi. If the property is eligible for participation, a mortgage servicer could offer:1. Reductions of interest rates to 1% (2% for interest only loans);2. Extension of the loan term to 40 years; or 3. Forgiveness of a portion of the outstanding debt.

f. For more information on all of the programs available through the Making Home Affordable Program, go to http://www.makinghomeaffordable.gov/.

V. Taking on a REO Salea. REO

i. REO is an acronym for real estate owned properties. ii. A REO property is often held by a lending institution as a result of a borrower’s

default and subsequent foreclosure on the property. b. Listing considerations on a REO property

i. When listing a REO, it is vital for licensees to understand their role, responsibilities and who is the proper party for authorization and approval of contracts.

ii. REO companies will often require that licensees sign listing agreements drafted by the REO company. 1. Brokers may sign a REO listing agreement but they may not fill in the blanks

on an REO listing agreement or use it as a substitute for the WB – 1. 2. Brokers should have an REO listing agreement reviewed by the brokerage’s

attorney before signing it. 3. Contractual protections found in the WB – 1 may be absent or modified in an

REO listing agreement. 4. Terms in an REO listing agreement that may differ from the WB – 1:

a. Protected buyer provisions are often excluded; b. Required Wisconsin agency disclosure language is usually not included

and must be given separately; andc. Inclusion of language that allocates responsibility for property maintenance

and utility bills to the broker. iii. As with a short sale property, licensees listing REO properties should do a search

and hold on a property to verify that no liens remain on the property. c. Working with buyers

i. Licensees must caution buyers interested in REO properties that the timeline can be slow and that they should expect delays in approval of submitted offers.

ii. Asset managers involved in REO transactions often have large property inventories and little familiarity with Wisconsin legal requirements for a valid real estate transfer.

iii. Verbal approval of a sale does not create a sales contract. 1. A verbal approval of a sale from an asset manager is not a legally binding

contract for a sale under Wisconsin law. 2. A legally binding sales contract requires signatures from both parties. 3. Do not assure buyers that a verbal approval is sufficient to create a legally

binding sales contract. iv. The standard REO addendum to a sales contract will usually contain:

1. An “as is” clause;2. Fees and expenses that are not readily obvious;3. Inspection costs such as turning on the water and winterizing a property;4. Proper lead disclosures;5. Liquidated damages; and6. Fees for closing delays.

v. Buyers of REO properties should be encouraged to have an attorney review a REO addendum to a sales contract.

vi. Brokers should caution buyers about the possibility of outstanding title concerns from missed liens in the foreclosure and closing delays.

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vii. To minimize potential liability when working with buyers in an REO transaction, brokers can use the WRA’s REO Buyer Disclosure Form “Information for Buyers of Bank (Foreclosure) Property.” 1. Brokers can access the form at WRA’s Mortgage Loan Assistance REALTOR®

Resource page @ www.wra.org/mortgages and on zipForm. 2. A sample of this form is included in the appendix.

Wisconsin Foreclosure

Judgment Amount due, redemption

period, and amount of deficiency judgment.

ConfirmationHearing

Summons and ComplaintLawsuit commenced.

90-180 days of non-

payment by homeowner

30days

20 days for homeowner

to submit answer

The time between the submission of the complaint and the

judgment depends on whether the homeowner submits an answer or a

defense.

RedemptionPeriod

2-12 monthsdepending on the property type and deficiency election

5-daynotice of hearing is required

Sale is confirmed,ownershiptransfers,foreclosed

owner loses all rights

Notice of DefaultFrom lender to homeowner.

Default JudgmentHomeowner does

not submit an answer or a

defense. Sheriff’s Sale

Listing Questionnaire Regarding Title IssuesProperty: Date:Seller:The Seller is: property owner (LIST ALL OWNERS on the line above ) personal representative for estate ofdeceased property owner guardian for property owner power-of-attorney for property owner

In order to avoid any surprises at closing, be prepared with the information the title company will need, and give ample time to resolve any potential concerns that are identified, please check YES if you are aware, and check NO if you are not aware, of any of the following situations occurring, either in the past, at present, or expected in the future, with respect to the property you are selling?

1. Remodeling, construction work orrepairs within the last 6 months? Any planned?

14. Unpaid homeowners or condominium association dues, fees or charges?

2. Remodeling or construction work 15. Judgments in court or tax lienswithout proper building permits? against the owner?3. Disputes with neighbors about the 16. Unpaid child support, income taxes,location of the boundary lines? property taxes?4. Unrecorded contracts or persons 17. Part of a building, garage, fence,claiming ownership rights or lien rights on the property?

driveway or landscaping on the neighbor's property? (or vice versa)?

5. Environmental concerns e.g., 18. Unpaid assessments for utilityunderground fuel storage tanks, damaged asbestos, high radon levels, deteriorated lead-based paint?

service or municipal improvements, e.g., sewer lateral, tree planting, sidewalk repairs, street work, etc.?

6. Violations of local zoning or building 19. Violations of recorded covenantscodes, for example, inadequate setbacks or lot size?

and restrictions, for example, fence in violation of architectural rules?

7. Any leases or rental agreements? 20. Burial grounds on the property?8. People or companies allowed to travel 21. Shared driveways, shared wells, oracross or use your property without a recorded document?

anything else shared with the neighbor?

9. Other persons in possession or 22. Questions or issues about your legaloccupying the property? right to access the road?10. Unrecorded deeds or land contracts? 23. Lawsuits involving the property

(pending or threatened)?11. Mineral rights reserved by someone 24. High voltage electric or highon the property? pressure gas lines nearby?12. Persons claiming rights to occupy or 25. Other violations of laws,live on the property? regulations, ordinances or restrictions?13. Basement rooms used as bedrooms 26. Missed mortgage payments ornot in compliance with building code? foreclosure or bankruptcy filings?

For each YES answer, please give the item number, provide a description and attach any pertinent agreements anddocuments. Use the back side or additional pages, if needed.

CONDITION YES NO CONDITION YES NO

WISCONSIN REALTORS® ASSOCIATION4801 Forest Run RoadMadison, Wisconsin 53704

Seller's Signature Seller's SignaturePhone: Fax:

Produced with ZipForm® by zipLogix 18070 Fifteen Mile Road, Fraser, Michigan 48026 www.zipLogix.com

Wisconsin REALTORS Association

Wisconsin REALTORS Association 4801 Forest Run Rd Ste 201 Madison, WI 53704 (608)241-2047 UntitledJennifer Lindsley

WISCONSIN REALTORS® ASSOCIATION4801 Forest Run Road Madison, Wisconsin 53704

Information for Buyer about Bank (Foreclosure) Property

" When a lender forecloses on a property, the lender will often bid the mortgage amount at the sheriff’s sale and receive a sheriff’s deed to the property. Property owned by the lender is referred to as a Real Estate Owned (REO) property.

" Rather than manage and sell the REO property itself, the lender often turns the property over to an asset management company who negotiates the sale on the lender’s behalf, working through a Wisconsin listing broker.

" Frequently neither the lender nor the asset manager is in Wisconsin. They are unfamiliar with Wisconsin real estate forms and laws.

" They have not seen the property so they are in no position to make meaningful disclosures about the property condition. They do not know whether there are serious defects like frozen/leaking pipes.

" REO sales are “as-is, where-is” transactions: the seller does not make property condition disclosures and often will not make any repairs.

" Negotiations to purchase an REO property typically start on the Wisconsin offer to purchase form (required to be used by licensed real estate agents in Wisconsin), but the REO seller typically has a lengthy REO addendum that they want added to the contract that overrides many of the Wisconsin offer to purchase provisions. An REO addendum is written by the lender’s legal counsel, favors the seller and is often difficult to understand. The REO seller may not allow any changes to the addendum.

" Because it is not a Wisconsin form, Wisconsin agents cannot explain the meaning and implications of REO addendum provisions to the buyer (to do so would be illegal,) so the buyer is encouraged to speak with an attorney who can interpret the addendum and answer the buyer’s legal questions.

" “REO sellers and asset managers often respond verbally to offers and will not provide written counter-offers. Until a purchase contract is in writing and signed by both parties, it is not final and 100% binding under state law.

" An asset manager may only have the ability to give a conditional acceptance, while final acceptance requires the corporate lender’s approval. Sometimes the lender might change the terms of the offer or even sell to another buyer.

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" Many REO sellers use a title company that is not in Wisconsin and not familiar with Wisconsin law; some also appear to try to short-cut the process (and save money) by providing less coverage and protection than under a traditional Wisconsin title insurance policy. There also may have been title errors if short cuts were taken by the lender during the foreclosure process, which may lead to additional risks for the buyer.

Buyer has been made aware that a property sold by a distant lender or asset manager (REO property) often was acquired through a foreclosure, and that REO sellers do not make disclosures about the condition of the property and may include an addendum that minimizes the seller’s responsibility to provide proof of merchantable title and modifies other contract provisions.

Real estate broker ________________________________________________and its agent have recommended that you consider the following measures to protect your interest in an REO transaction:

1. Have your attorney review the offer to purchase; other purchase documents, including any REO addendum; and the title evidence.

2. Either (a) purchase the loan title insurance commitment for your lender from a local title insurance company, or (b) purchase your own title insurance commitment (in addition to that provided by the seller) from a local title insurance company to double check the title work (this may involve additional costs). Be sure the local title agent checks all pertinent municipal information including city orders and zoning.

3. Obtain inspections and tests to determine the property condition. 4. Take direction from the attorney before closing or providing any closing

funds.

The undersigned Buyer acknowledges receipt of the above disclosures.

______________________________________________________ ___________________ Buyer Date

______________________________________________________ ___________________ Buyer Date

Copyright © 2011 by Wisconsin REALTORS® Association Drafted by: Attorney Debra Peterson Conrad No representation is made as to the legal validity of any provision or the adequacy of any provision in any specific transaction.