Anyone can do the 3 P's in real estate (Put up a sign, Put it in MLS, and Pray), but how much service would that really render to your sellers in a short sale?
I work in Californina, which is a non-recourse state. Meaning that if the mortgage is a purchase money loan, and it goes to foreclosure, the banks sole remedy is to liquidate the property to recover it's investment and the seller is not liable for repayment of the loss. There is the exception rule of "borrower fraud in the original application", but this requires the bank to pursue a deficiency judgement in court which takes a year or more...and then the owner-occupant-homeowner has an additional year to redeem the loan and get the property back. I have never personally seen a bank take this route in 17 years of doing short sales; the downside is just too great.
Most experienced short sale agents understand that the real danger to homeowners in a foreclosure in California (besides the obvious credit damage) is the recourse loan in second position. 98% of the time that lender steps back and lets the first lender foreclose due to an insufficient equity position. Too many folks have been misled by the "non-recourse state" thinking (agents and homeowners alike), leading to a less serious marketing and negotiating effort. What a shock it is when the former second lienholder sues for the recovery of their loan! Just beacuse the security for the debt went away, does not mean the debt did. (With the exception of bankruptcy... which, not everyone qualifies for) This begs the question, "Do agents who do not properly advise their clients, have liability for not correctly advising their sellers of this potential ramification?"
The agent who takes the time to insure that the seller's financials fully and accurately portray the hardship, understands that the lender is more apt to go easier on a non-bankruptcy seller. If they demonstrate that they will have little-to-no discretionary income when the dust settles, the lienholder is more apt to cut a deal. Conversely, imagine what you would do if you were the lienholder and the seller appeared to have $2,000 a month in discretionary income when the short sale was over? You can expect a cash contribution, and / or, a sizeable unsecured promissory note to be required in order to settle the debt.
All too often, homeowners have the mis-guided viewpoint that they are "applying for credit" and want to "sugar-coat" their financial scene a bit. I actually had a CPA client, that listed a $200,000 term life insurance policy as an asset! True term policies have no cash value. This could have caused a busy, stressed-out loss mitigation representative to deny the file out of hand, or at the very least, request a sizeable settlement. If I had not reviewed the financial statement prior to it going in, we may have gotten a denial and the property could have gone down to foreclosure! Sellers need to understand that they become more of a target when their financial scene appears to be rosier than it is, after their existing home loans are gone.
We all need to be very diligent in this area for sake of rendering a truly good service for our homeowners, and, consequently we will all do better in the process.
Click here to learn more or e-mail me at: Sterling@helpusellfolsom.com
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