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5 Things Agents Need to Think About with Short Sales

I know I am in the minority here when I say agents should not be negotiating short sales. (which I have written about ad nauseam) I am fully aware that in some markets, 90% of the housing inventory is a short sale or REO. Every time I turn around, I see some other "agent expert" hawking their short sale how-to book or "qualifying" designation. Unfortunately, short sales are part of the real estate business in 2009; however, we are in unchartered waters as agents and I hope that in 10 years, the real estate industry doesn't look back on this and say, "what were we thinking?".

1. Does your E&O insurance specifically state that you are covered to engage in a short sale? I asked my insurance company this and the answer was, "yes"; however, the policy doesn't specifically state "short sale" nor any of the acts normally associated with handling a short sale. The policy does state that I will not be covered for acts as an agent, "not expressly described herein".

2. If the sellers currently have a government mortgage and they sell it short, will they be able to get another government loan (including a government backed student loan) unless they pay the difference? From what I have read with regards to VA loans, the answer is "no".

3. With some banks, if the property has fallen in value to a point where it is not worth more than a certain amount (say $25,000), they will not foreclose. Of course, they do not advertise this; however, they will just release the lien on the property.

4. We are not just dealing with sales prices here. We are dealing with the futures of these sellers. Let's say seller A sells short, is required to liquidate his savings and starts having his wages garnished for the difference 2 months later. Seller B, same mortgage company, same shortage, doesn't have to liquidate anything and the bank agrees to no deficiency judgment. Is seller A's agent at fault for not negotiating better with the bank?

5. How does your licensing board address agents handling short sales? The licensing board in Virginia doesn't specifically address short sales; however, it is VERY specific about agents performing duties that should only be handled by an attorney. Is negotiating a short sale with a bank (who is not a party to a standard sales contract), a "ministerial" act for an agent, or something with legal ramifications that should be handled by an attorney?

My husband works for a large bank. Everyday, they get calls from former sellers complaining that their wages are being garnished, the bank placed a lien on their other property, they lost their job because of their credit (yes that really happened) etc., and that "my agent never told me this would happen", or, "my agent told me the bank could do this, but the bank's so swamped, probably won't".

Sorry, unless a real estate agent has a crystal ball and knows the long term ramifications of a seller doing a short sale, I don't think they should be calling themselves a "short sale expert". Even the most "experienced" agents working short sales have only been dealing with them for what, 3-4 years tops? That's not the making of an "expert" in my opinion.

Tina in Virginia

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Posted by Tina Merritt - Virginia Beach Real Estate on 07/07/2009 06:21 PM

Comments (86)

Short Sales in the ActiveRain Channel

short, sale, negotiating, agent, agents, negotiate, banks, expert

Originally posted at: Hampton Roads Virginia Real Estate: 5 Things Agents Need to Think About with Short Sales

Post is included in group: Short Sales Specialists
Post is included in group: Short Sales Pre Foreclosures Bankruptcy and More!
Post is included in group: Short Sales and Forclosures ONLY
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86 Comments on 5 Things Agents Need to Think About with Short Sales

JUL

Out of curiosity, where did you get this information? I did not know about alot of them. I stay away from short sales.

Angelia - I read a lot about short sales and have spoken with a few attorneys who handle them. Also, being that my husband is on the "other" side, I hear a lot about what goes on with the banking-side of short sales. Thanks for reading and commenting.

What about companies who work the sale.Not the agent. I prefer to let the Shortsale company work that end my job is to market the home and get the best terms we can for the seller . I agree Tina there us Alot to think about.

Great points. My take is that you shouldn't need a license to negotiate a short sale with the lender. I also believe that in this country, anyone can sue anyone for any reason, so that shouldn't discourage you from doing what you like to do. Disclose that they should seek an attorney for the legal ramifications and a CPA for tax consequences and you covered your obligation to the client (in my opinion).

Interesting. My experience is a bit different than the average agent. I worked on the title insurance/escrow side of the business when short sales first happened in the early 90's. Have had a California real estate license since the 70's - and now practice as an independent broker. All my short sale business is referrals. I consider my experience considerable and solid. But... I do use an abundance of caution in every senario. Every seller has a different set of circumstances.

I agree that agents should have a full plate of knowledge, before trying to do short sales. And, how do you get that knowledge if you don't have it? It's a difficult question. Laws in the future will be written about how we handled these files in these times. I think the jury is still out on the long term relationships and benefits of "third party short sale companies" - I doubt they will still be there when this market passes. If you have a future problem - what do you do.

But, at the heart of it all is the seller - who really needs help and sometimes, short sales are a good option for them. Ultimately, it is still their choice to short or foreclose. Foreclosure's may be the best option for some, but not all.

Thank you for posting.

Great post- Ive done several shorts both as an agent and as an investor. I wish the cooperating agents would have read this first.

I just had this conversation at listing consultation on Friday. What makes it even harder is that most who want to short sell are trying to move up and don't realize the likely outcome taht they will not be able to immeadiately turn around and buy again.

Tina I happily sit with you on the minority bench. I ALWAYS tell those thinking about short selling to consult a CPA and atternoey as almost alwasy these people have other financial issues besides their home.

As a market note, I work as a BPO field agent in a market that is shifting from REO to short sales. Some of waht I see being done outright scares me and further cements why our industry has the reputation it does.

Matt - thanks for not having me sit alone on the bench!

Mike - when I mention "deficiency judgement" to short sale agents, I am amazed at how many don't know what that even is!

Cathy - you are right..short sales are usually the better option. I just hope that sellers are being advised of ALL of their options so they can make a well educated decision.

Amiri - i don't think you need a license to negotiate a short sale, do you?

Alison - I prefer an experienced short sale attorney over a short sale service. I have worked with both and the bank seems to respond better when an attorney is on the other end. The attorney's fees are all paid by the bank.

JUL

While I do work with short sales I do not do any of the negotiating with the bank. I have an attorney that does all of the leg work. Keeps me out of it and also keeps me more productive on other parts of my business.

Here in Miami Beach, I've done only one SS. Great post but I have one question: What is a deficiency judgement?

Thanks!

Yes, It takes two years. I have already helped many folks with this problem. After two years they can buy again.

Chris

Chris:

You may want to add that Freddie Mac and Fannie Mae will not back another loan for the seller that has a foreclosure on their record for up to five (5) years vs. the two (2) that you mentioned.

Jim McNinch
Foreclosure Prevention Network
Providing Short Sale Negotiation, Training and Loan Modification
Address: PO Box 1998 Spring TX 77383.
Phone: 832-330-4588
E-Mail: info@TrademarkForeclosurePrevention.com
Web Site: http://www.TrademarkForeclosurePrevention.com
Blog: http://www.shortsalereporter.com

I have said this many times: SHORT SALES ARE NOT A REAL ESTATE ISSUE, THEY ARE A BANKING ISSUE. Unless you have prior banking training or experiance, you have no business doing short sales. It's that simple. Agents who are "learning as they go" on short sales will very shortly be on the recieving end of consumer law suits, mark my words. I do believe that short sales should be regulated and licensed seperately. I am contantly amazed as agent who take a three hour webinar are now marketing themselves as "Experts." Please. And atttorneys too. Just because you have a law degree does not qualify you to do short sales either. The mechanics are fairly simple, but it's the nuances and tricks and lender guideline knowledge that make successful short sales.

www.short_sale_expert.activerain.com

Joseph - you are so correct - they are a banking issue...and a legal one as well.

Jim & Chris - I just called someone at the VA and was told that the COE will be reduced by the amount of the deficiency until it is paid off. That could mean that the seller will never get their VA eligibility back unless they pay the difference off.

Kevin - I'll explain it to you over a beer at REBC Virginia Beach!

Bill - I agree with you 100%!

Tina,

This is a great post, and brings up many things that Realtors need to take into consideration. There are too many ways that the sellers or mortgage companies can use as leverage for future lawsuits. E&O insurance has many loopholes that can leave an agent/broker unprotected. I think it would be in the best interest of an agent, along with a seller, to have legal council during a short sale. The money for the representation is well worth it, considering what losing your license can cost you in the long run.

I haven't jumped on the "make money in short sales" bandwagon. Here's another good reason to be VERY leary!

Thank you for posting!

http://www.PinnacleService4U.com

Wow - the most amazing thing here to me, is that you called someone at the VA - got a person who was able to answer the question!

Tina, I could not disagree with you more about agents doing short sales.

1. "Negotiating" with the bank. As a licensed agent, what do you do when you receive an offer on a property you have listed? You merely consult with your seller and go over the pros and cons of that offer and then you present back to the buyers agent with a yes, no or counter. You do the SAME thing with the bank. You merely present offers. My point is that you don't do anything different doing short sales than you do a regular transaction.

2. Regarding government loans - your answer of "no" is just incorrect.

3. Never heard that one but Ill take your word on that. Thanks

4. That is the nature of the beast. Anybody can sue anybody for anything at any time. The problem is if Agent A is not doing their "job" and disclosing information. Get trained and you will be OK.

5. Im sorry, this doesnt make any sense to me (and its probably my finite mind...:)) but your husband works at the bank? Sellers calling in saying their wages are being garnished? Its not because they are not paying their mortgage to that bank, I can tell you that. So that is no reason not to help sellers with a short sale. The bank placed a lien on their property? Um, the bank already has a lien on the property. Sellers losing their job because of their credit? How is that the agents fault/responsibility to disclose that?

As far as attorneys doing short sales. Their numbers of closing short sales are just as bad as the ignorants agents out there, so don't get caught up on "an attorney should be doing this...blah blah blah". Attorneys are in BUSINESS, just like you are. Where attorneys are very useful are Loan Modifications. Maybe your clients should seek a loan modification and bring the attorney on board. But as far as short sales, I think that real estate agents COULD be the best at it IF they know what they are doing. Too many agents believe the nonsense revolving short sales and have NO CLUE about how to do them. Then they write blogs about staying away from short sales and perpetuate the market with negative talk about short sales.

I have been trained by AVP's at banks about the banks perspective about shorts sales, I have paid for attorneys time regarding the legal requirements of short sales, I have talked to countless CPA's about the tax ramifications of short sales (and they are just as ignorant too). And NONE of them say that "attorneys" should do short sales.

All this leads me to the conclusion of AGENTS REALLY NEED TO BE DOING SHORT SALES! Have one disclosure stating that the agent is advising you to seek the legal counsel of an attorney and the tax advice of a CPA. Then proceed on....

Good Luck

Mori Langshaw Sr.

Tina, I agree with Mori. The term negotiating is used very loosly. The contract is between the buyer and the seller. The agent advises the customer during the negotiations and then assembles a short sale package as per the lenders requirements. At what point is the agent negotiating with the bank? You are sending the bank what they ask for and they make their decision. You present that to the seller and advise them to seek legal counsel and tax advice.

The problem with handling a short sale is the lack of systems and models with the lenders loss mitigation departments. If you and I ran our business the way these lenders do, we would not last long. I know these banks are SWAMPED in these but a good system would go help tremendously. Also, these banks need to learn that we are not their enemies, we have the same goal as they do, to sell that property for as much as we can.

Michelle - my license is my livelihood and I must protect it at all times. No one cares about it as much as I do. Thanks for reading and commenting!

Joetta - I've done a few VA compromise sales over the past 11 years and fortunately, have made some good contacts at the VA. I should add that the information I received pertains to compromise sales only.

Mori - thank you for reading and commenting.

Hi again Tina, I reread my post and I apologize if it was condescending or "mean". I love short sales ;-) and what they mean in this market and sincerely believe if agents KNOW what the nuances were, we could all be great at it.

Thanks Tina

Mori and Jeff - by "negotiating" I really mean deficiency judgements and how much cash the seller will be required to put up. That's where the wage garnishment and long term, lasting effects of a short sale are felt. I too wish there were a system in place that worked for everyone. Unfortunately, there are so many varying state and county (and in some cases, municipal) guidelines regarding foreclosures, liens and deficiancy judgements, that will never happen.

Good points Tina - You're absolutely right, these are uncharted waters!!

Best, Dan

My clients generally don't have any money to bring to the closing table and I let the bank know that up front. I have never let a client sign off on an approval letter that reqires them to bring cash or take a personal loan for the balance.

Regarding a lost job due to credit - Most of my clients have destroyed their credit before they ever get to me. Our services usually save them a few dings on their credit and allow them to recover more quickly.

This quote is so true "We are not just dealing with sales prices here. We are dealing with the futures of these sellers" So many agents do not care about this, all they are looking at is the sale, they do not work the bank, stop communicating let the property go over 30 days with no offers. Sad, I had one listed by another agent for 30 days, at 180, no picture, one showing. I relisted it at 120K, (10% lower than the last sale price), 34 pictures and 24 offers; dance stopped at 175K Cash.

In reference to comments by Joseph Alfe, I agree that agents should not be using the term expert. In fact, NAR had this very same issue discussed in a recent newsletter.

I have completed the Certified Distressed Property Expert program and received the certification for the CDPE. However, I will not use the "expert" term. I have contacted the CDP offices to advise that the NAR advises Realtors not to use or claim the the term "expert" due to the ramifications (lawsuits, etc.). No answer back.

I will say that I learned alot during the intensive short sale seminar. I did not necessarily want to go into listing short sales, however, will do so for those owners who have a good chance of working it through with the bank instead of foreclosing (example, no second mortgage, true hardship, etc).

I do believe that standards / acceptable practices should be in place for buyers of short sales. I have several short sale contracts now, with buyers (my clients) qualified and ready to buy. I am experiencing difficulties with each of the contracts. Either the listing agent is not totally familiar with the process or the bank contact complaining about how busy they are and not getting the faxes, etc etc etc.

Interestiing reading /comments.

Courtney Peace Hagins REMAX Island Realty Hilton Head Island, SC

Very good post. I did not know about the issue with the VA loans. I imagine the same thing might apply to VA loans. Maybe the government should help bail people out instead of banks?

Great post and vital information for anyone involved in short sales. A must READ...glad your post is featured!!!!

great blog and important issuse on short sales. I feel with our knowledge, we real estate agents can handle these short sales appropriatly. We are well trained. great info here on short sales. thx again!

Tina--I think we're both in the minority, believing that real estate agents shouldn't be negotiating short sales. I'm also surprised to see that some people don't think that short sale negotiation is actually "negotiation". If you're sending an offer into the seller's lender to get a short sale approval, you're asking the lender to accept payment terms that aren't part of the original agreement between the seller and the seller's lender. Isn't that negotiating? What about when the lender counters? Wouldn't responding to their counter be negotiating?

In my state (Washington), negotiating the legal or finanancial rights and responsibilities of a third party is considered to be the practice of law. Real estate agents are allowed to practice law in a very limited form, which involves filling in blanks on certain real estate contracts. The seller signed a promissory note with the lender, which is a legal contract. When doing a short sale, you're negotiating the terms of that contract by asking for a payoff that is less than the amount initially agreed to.

Some real estate agents claim that because they're negotiating the short sale as part of the purchase and sale transaction, that they should be exempt from it falling within the "practice of law" definition. I think those agents are walking a fine line and may not have any written laws to protect them.

I think that third party short sale negotiation companies that aren't attorney driven present the highest liability risk. They're negotiating the legal rights and responsibilities for a third party, and they're not involved as an agent in the sale. There are lawsuits here where the broker was sued and the short sale negotiation company was named in the lawsuit. The main argument was that the short sale negotiation company was practicing law without a license. In the end, the broker had to pay (because that's where the money was).

There are legal implications to negotiating short sales. Short sale negotiations don't always involve getting the bank to say "yes" or "no". Also, for agents that say they won't "sign off" on a short sale that involves the seller signing a promissory note could be doing their clients a disservice. There are some instances where this is in the best interests of the seller. (The promissory note is typically for a small portion of the deficiency and is generally on good terms--zero percent interest payable over ten years.) Being able to have the attorney present options to the seller in a difficult situation helps protect me. Short sales don't always have simple outcomes.

I prefer to spend my time selling real estate and finding new clients rather than negotiating short sales. 90% of my business is short sales. I use an attorney, and the attorney bills the lender for the short sale negotiation services. The lender pays the attorney the majority of the time, and if they don't, the cost comes out of my commission. A lender won't pay a real estate agent or third-party non-attorney negotiator a negotiation fee.

Florida allows licensed real estate agents to facilitate short sales. I let the seller know they need to consult an attorney for legal advice and a CPA for tax advice, and can do so anytime during the transaction. Also, the seller makes the decision on the bank's offer, not me. I don't make decisions for my clients, not even in traditional transactions.

Tina, I agree with Wendy, we are not party to the contract, we are transaction brokers in Florida. I make the sellers sign a disclosure package with a specific disclosure about seeing legal advice.

I see alot of agents who seem to think that they are party to the contract and make decisions for the seller.

Short Sales have been around for along time-- not just 3-4 years. Most agents avoided them in the past and many continue to do so.

Reality - most attorney's charge $100+--- hard to pay them to sit on the phone and waste time with these banks-- the average short sale is likely to cost over $30,000 easily. And I have found that most attorneys, unless shorts are all they do are far less knowledgeaable than realtors. Nothwithstanding that, it is important that the E & O insurance covers and, as always, realtors must be sharper than the paralegals, and attorneys in most cases plus add the layer of being smart enough not to show it or they will be practicing law. Very sad situation and I think we are letting the legal profession push us around vs. taking our rightful professional place in this field!

A good standard NAR disclosure form on short sales would be good and do a lot to protect realtors from unnecessary liability.

Karen Stanley

Karen - I really don't see it as attorneys trying to bully agents. The attorney I have used to negotiate a short sale charges $700 - $1500, which includes the closing. They negotiate their fee with the bank.

Jeff, Jack, Dan & Wendy - I think the laws vary state to state and each state licensing board needs to address what acts agents will be allowed to perform under their license.

David - you make some good points. Also, what happens when the seller gets a 1099-C in the mail from the lender? Who are they going to blame for not telling them about THAT??

Kristi and Ginger - thank you for reading and commenting!

Gene - yeah - don't hold your breath for that one!

Courtney - good luck with your contracts!

Mark - I would hope the decision would be that of your client and not yours.

Interesting post and comments... Agents should not be taking on short sale listings unless the sellers only alternative is a Foreclosure to begin with...

Think about what is better for the sellers and lender... Foreclosure or a Short Sale? Hmmm... No Brainer in my book.

As far as liabilities as to what one seller gets and the other one does not... the lender makes the final decision.. PERIOD.

No Two Sellers have the same house, the same loan, the same financials or the same buyers...

Karen, PERFECT post! Kudos to you.

Paul - but that is part of the problem...unfortunately, it's not a "no brainer". There are a few circumstances where a foreclosure could be better in the long term for the seller. For example, in some states, all debts held with that bank will be wiped out with a foreclosure, but with a short sale, the bank can go after a def. judgement (and garnish wages) or issue a 1099-C.

Mori - my name is Tina - but you can call me Karen if you want to :-)

LOLOL....Hahahaha...TINA

JUL

This is infomation that is important to our business. I refer out the short sales. I can use my time in far more better ways. Being on hold for an hour for each deal--is not fun. Easier to pay someone else to do that.

I think the short sales are very complicated and it appears there is always some new ways to do things and everyone has a different idea on the matter. No real cut and dry answers to questions that need to be answered.

Al - I like your attitude!

Deborah - you are so correct!

Tina, if my client gets a 1099-C from the lender, it shouldn't be unexpected. Tax ramifications, deficiecy judgments, etc. are covered in both the attorney's retainer agreement and the short sale disclosure for the brokerage that the seller signs.

I also agree with Deborah. Every short sale is different, and you can't necessarily apply one set of rules to every short sale. Also, rules and requirements for short sales vary from state to state.

It's interesting that we all tell short sale clients to talk to an attorney or CPA for legal or tax questions, but most of the time they don't have the money to pay for a legal or tax consultation. I think it's important to provide the seller with disclosures that include pertinent legal information (not advice) written by an attorney and tax information (not advice) written by a CPA, so at least they won't be in the dark if they choose not to seek independent legal or tax counsel.

This is not the first time someone here on AR has written about your E&O ins being in possible jeopardy. I think that we are actually out of our scope of duties that we perform. We sell the house, yes, but negotiate with the bank as an attorney would? I'm thinkin' that's not what we are really supposed to do. A lot of 'experts' obviously feel otherwise until they are served a subpoena a few years from now.

I hate short sales! Therefore I gladly leave them to those agents that want them. I'm not a short sale "expert" and don't want to be one.

Tina...

We so need discussions like this one going on around here.

TLW...ROAR!

Tina, Very good post and topic for discussion. I don't agree...but good post none the less. I have had sellers seek the advice for Attorneys and the advice they were given was utter foolishness. Attorneys are not qualified to handle short ssles unless they too have experience.

At least in Florida agenst and brokers are leaglly able to work short sales. I guess that could change but I doubt it. Now I do agree that laws suits will be flying over short sales in the near future.

Short sales have lots of negative ramifications for the seller. But they are still far better than being foreclosed on. If the seller wants to get through this with no issues at all then the best way forward is to make their payments.

Hi Tina;

Great post with short sale information. I thank you for sharing.

Anthony - and thank you.....for reading and commenting!

Broker Bryant - I've learned that things are very different in Florida in that your licensing laws specifically address short sales. You are fortunate that your licensing board is thinking forward.

TLW - Broker Bryant is a lucky man to have you! I hope he tells you that every day!

Monika - you make me laugh! Can't wait to have a drink with you and "discuss" short sales!

Lyn - and what's really sad is that the E&O companies can't give us a straight answer!

David - this "attorney retainer agreement" - is it a state form? a company form? I've never heard of an agent using one.

I had just logged out of AR when I saw this on the featured page. I'm with you 50/50 on your post. The majority of agents out there should not be working short sales for many reasons, including not having any experience in this area. However, I don't think that it should mean all agents should walk from the clients that need their services especially if there is knowledge about how the system works.

What can get dicey is if the client hands off all involvement to the agent. If you're worried about E&O coverage then you should put a clause in the contract that states you have given written and verbal notification to the seller that they need to get legal and tax advice - or at least document that it has been done in some form.

The ones that scare me are like a deal I'm working on right now where the agent was promoting the use of some guy from Nouveau Riche who's charging ridiculous sums to negotiate. This guy has absolutely NO business doing this kind of work. He's not licensed, he's not an attorney, he isn't involved in tax (accounting, CPA, or tax attorney). In fact, he's a former contractor who flipped properties for a living till NR sold him the classes/secrets to becoming a short sale negotiator. You should see the illegal crap I've read in his forms that he pushes on the agents who have buyers to put into their offers. That's when, I'll bet money, E&O won't cover you.

We refused this joker's "assistance" and I'm working the file just fine, thanks. I've worked many of these over the past 6 years, and we always recommend additional professionals be involved so the seller understands their rights and legal obligations in THIS state. They vary from locale to locale.

Tina, the NAR code of ethics has something to say about trying to do something without having the expertise. Trying to do a short sale with no experience or training is likie me taking on a 100,000 building for leasing. I don't know the first thing about it so I won't take it on. I do think that Point 2 bears some investigstion. I do think that they can get another VA loan, but i am not 100% sure. I know what calls I am making in the morning so i can be sure one way or the other.

Tina

I am thinking of outsourcing any short sales to a loss mit co. in our area because of the many headaches associated with short sales.

Tina- Again, we need to clarify what state you are discussing with some of your items.

Each State handles foreclosures and deficiencies differently.

In Florida there is a difference if your short is on your principle homesteaded property or an investment property. Florida is an asset protection state. Although it is a deficiency state as long as one is a resident of this state, the bread earner can not have his paycheck garnished.Of course, if they get foreclosed on and then move out of the state, then the new state's rules will apply as to the judgment on the foreclosure. So you have your clients sign all the disclaimers and waivers in the world:) Florida specifically states that real estate agents and attorneys are even exempt to some of the loss mitigation requirements that short sale companies would have to abide by.

Lawsuits are everywhere. If we are so afraid of lawsuits than none of should be in real estate because it is not just shorts that people sue over. In fact, the largest new amounts of law suits in real estate are about square footage. So I guess that would mean that we should never ever disclose what the square footage might be or is estimated to be because someone might sue us. Katerina

Lets ALL start with at least taking the CDPE course. A Certified Distressed Property Expert® (CDPE) is a real estate professional with specific understanding of the complex issues confronting the real estate industry.

CDPEs don't merely assist in selling properties, they serve and help save their clients in need.

In most parts of the country SHORT SALES are THE MARKET, lets all work together and help solve the foreclosure crisis one homeowner at a time.

Visit www.CDPE.com and take action NOW!

I think the key comment here is that SHORT SALES VARY GREATLY BY STATE - there cannot be one "designation" that trains an agent to handle these transactions as RE agents are dealing with extemely different situations depending on their locality.

Oops sorry, forgot to sign in, that is Katerina in comment # 51.

I would like to add also that just like Wendy said; in FLorida we are presumed by law to be transaction agents not fiduciary agents. Again, goes back to we need to keep prefacing which state we are discussing when we talk about short sales. I preface my posts with IN THE STATE OF FLORIDA.

We need to be responsible about this since homeowners are reading these posts and it is not fair to them when they are getting mixed messages.

I will tell you that every single one of the attorneys that we know except for 2 of them are horrific with short sales and they do not care in the least in the outcome. They run their offices like factories and show off about their 10% closing ratio! That is shameful! Katerina

Tina- I totally agree with your #53 comment. I know agents who have the certification and still don't know crap about short sales and others without the designation that know a heck of a lot about shorts. Nestor's first short sale transaction was back in 1995. They have always been around.

The ABR is hosting a seminar in the next few weeks about short sales. I'll bookmark your post and see if they touch on any of your great points.

Incidentally, read my blog on "The Banks Become Chefs . . . and Cook the Books," which is my answer to WHY banks don't work shorts rapidly and/or to the sellers benefits.

Short Sales are a whole big bag of worms. Be Very Very careful with them.

Your Queen Creek Real Estate Specialist

Thanks, Tina. I haven't had one yet and your post makes me more cautious about taking one on.

Hi Tina, I like doing short sales now...but at one time I was ready to leave them for someone else. Now I know what can and can't be done according to the banks, what can and can't be done for the seller, and what can and can't be done by me.

I've worked very diligently to obtain the information and skill needed to really help homeowners who are at the end of their rope. A couple of weeks ago, I released a listing so a couple could attempt a loan modification...even though they had been counseled, they didn't "get it" - so I went over the possibilities again to make sure they had really considered all options. They will do the modification themselves, but I did instruct them to speak to their attorney and CPA to get more insight. Hopefully they will succeed. But with all my sellers, I go over the possible pitfalls and repeatedly tell them what the options are, up to and including foreclosure.

I believe if people do not have the experience, they should not attempt a short sale UNLESS they have a very good mentor. We all have to learn somehow, but we must not learn at our client's expense.

Reba wrote:

This is in response to Reba Haas - Comment #48

Reba,

Are you aware that the instructors at Nouveau Riche's college must be millionaires to teach?
Are you aware that the instructors must be active real estate investors to teach at NR's college?
Are you aware the instructors must show the owners of NR their HUD1 settlement statements showing their closings of a million dollars net worth before they are allowed to teach?
Are you aware the instructors must show their tax returns of million dollars net worth to the owners of NR before they can teach?
Are you aware that the instructors at NR's college must get a FBI background check done on them before they can teach at the college?
Are you aware that the current Short Sale instructor at Nouveau Riche's college is a millionaire with a 16 year background as a diesel mechanic?
Were you aware the current Short Sale instructor at NR's college became a millionaire after attending NR's college?
Did you know you do not have to be a licensed real estate agent to invest in Short Sales?
Did you know there is a different mindset between Realtors working short sales and Investors working them?
Did you know you do not have to be a licensed CPA to invest in short sales?
Did you know you do not have to be an attorney to invest in short sales?
Did you know that real estate investing education, including short sales is the same across the country? The only thing we must do is find out the law of each State before we invest in short sale in that specific State.
Did you know that buy and hold investment opportunities offered to Nouveau Riche students are over seen by the F.T.C. and audited by the S.E.C. for consumer protection?
Did you know there is no such thing as a self made millionaire and people request assistance all the time?
Are you aware that I took offense to you calling this person a "joker?" If you call him a joker, you are calling me a joker and everyone else who is a part of NR "jokers."
Did you know that the Owners of Nouveau Riche will not appreciate you calling one of their students a "joker?"
Did you know the owners of Nouveau Riche asked us to be on the constant lookout for those who slander Nouveau Riche's name or shine it in a negative light?
Are you aware that the owners of Nouveau Riche do not take slandering of their name and opportunity lightly?
Are you aware this is not "illegal crap" as you so unintelligently stated it?
Do you know why banks should accept a short sale based on their fractional reserve operation?
Do you know the loss of loaning power a bank has when they take back a property?
Are you aware that banks are in the business to make money and not take back property and we are aiding them in that effort?
Have you seen my post titled "Contact from Don" and my response to it?
Did you know he sent me a very apologetic email after I posted it as a blog?
Did you know I'm considering writing this as a blog as well?
Did you know a Realtor sought me out to help negotiate with the banks on his short sales and he found me via Active Rain?

Reba you have 3 options:

Stop complaining....it will get you no where
Go to NR's college and take the 2 day Short Sale Class...this will get you farther OR
Continue your negative talk and see what happens. See referenced questions above.

Tina, you have a great discussion going on here!

Agents who tackle Short Sale do have a lot to think about before they get involved. The number one thing that I see Agents fail to think about is when they take on a Short Sale listing without thinking about what they're doing they jeopardize a favorable outcome for the distressed seller because they haven't acquired the skills necessary to accomplish a short sale. How can one put a Seller at risk of foreclosure by taking on a task they know nothing about? That's what they should be thinking about!

Lynn - unfortunately, they don't think about it most of the time.

Tony - I wasn't aware that being a millionaire qualified someone to teach the masses how to do short sales.

Dawn - I agree with you.

Bob - thanks for reading and commenting - my friend up north!

Edward and Celia - a big, huge bag of squirly worms!

Katerina - yes, i think the designations really don't mean squat - especially since they aren't state-specific.

I think you bring some interesting thoughts to the table with this post. I have not worked short sales personally, but as a broker/manager, I have dealt with some of the messes that short sale listing agents have gotten my buyer agents into. I do believe, as I stated in a comment on another short sale blog the other day, that it is unethical for an agent who really isn't equipped to handle a short sale to take one on and put buyers, sellers, agents and brokers at risk. It is just plain irresponsible and greedy to sail into uncharted waters for the sake of a commission check. Thanks for your post!

Jeani

Tina ~ This post was very interesting. Just today I had a client call me to ask if he had to do a short sale on his house would be be able to us is government loan againi in the future. I called a lender I often use and she said he would have to wait 4 years to apply for another one. Unfortunately I am not sure who is correct as I have read conflicitng answers from the comments posted here. There seems to be a lot if disagreement on several topics that you have touched upon, but all worth reading.

Tina, my focus was on "quality" as opposed to quantity (millions). When you have the first, the second follows. I'm sorry you over looked that part as most people do.

I think agents do their clients a great disservice if they try to negotiate with the bank, that is the job of an attorney.

JUL

Interesting information and point of view. I have worked with several realtors that are doing a lot of short sales but they aren't calling themselves experts.

Good post. I agree 100% with you that agents need to refer to professionals when handling short sales. My wife is an Attorney and we have both been involved with short sales long before they became so mainstream. We have seen so many agents jump on board and suddenly become "experts" in our area as well. I have always suggested agents refer short sales out to real professionals who have a proven track record. However, I would never advise anyone to stay away from short sales. This is a valuable service that many people need right now where the only other option is a foreclosure. The reasons a short sale is better than a foreclosure is another topic so I want go into that.

Your comments are correct for many agents who do not have a full understanding of the wide range of training and information that a Realtor needs to properly represent a seller in a short sale. You believe that there are only agents who have been doing them recently, i.e. not experienced enough to teach others and properly represent sellers.

I did my first short sale in California in 1992. I have been doing them ever since, as there are people who manage to get into trouble in any market. I even did one in 2005. By the way, I am also licensed as an Attorney. So, there are some agents out there with a skill set that is different from your image of short sale agents.

Because of my experience, I teach others how to do them properly, which takes a lot of teaching. My class is approved by the North Carolina Real Estate Commission for continuing education credit after extensive review. My book, Create A Short Sale, Your Guide to the Short Sale Maze covers the issues where you indicate that training is lacking in most agents. I believe you are trying to encourage agents to get complete training before representing sellers in short sales, as you point out problems if agents do not know the full range of responsibilities. An encyclopedia of Short Sale information is available to help agents at www.CreateAShortSale.com .

Your are right there are many things an agent needs to do. One of the most important is to try to get complete relief from the debt. However, the agent needs to explain when the listing is taken that there is no guarantee of complete relief from the debt and that the lender may try to pursue the seller. The review of the bank's approval letter of the short sale is extremely important, as it will give the seller the confirmation that the debt has been fully staisfied, or that the seller will still be pursued for the debt. Negotiating the terms of that letter before the seller signs it is a critical part of short sale representation.

Making agents aware of the education and training necessary to properly represent a short sale is important, so thank you for that.

The world of short sales is certainly uncharted even for agents with experience. Every lender is different, every property and circumstance is different. Your experience helps you persevere. I'm currently working with a mega lender who is merging with another mega lender and a couple of days ago I decided that we may just all be going to 'heck' without even getting a hand basket.

My question is not only will we be asking what were we thinking in 10 years (or less), but what were we thinking about giving all this bail out money and still have no real consistency with the process?

Thanks for all the information. We are not Realtor, but go through some of the same things on are end. But we are not hit with the legal end of it.

Short Sales are a real pain! That said, it would be great if we had a bit more guidance from our licensing boards as to what we should do or not with respect to these transactions. I remain "In for a penny, in for a pound". I have several short sale listings that I am negotiating. It will be nice when these go away.....

There is a whole other perspective from which to bash short sales. They are generally not a beneficial thing for the Seller, often a frustrating waste of time for the buyer and gum up the marketplace. They may be a benefit to the lender, could relieve the courts of some backlog, and may provide some profit to the real estate agents.

But, they don't do the seller much good. To complete a short sale, the borrower (seller) must show a lack of resources and be a few months behind in payments. Once 90 days late on a mortgage their credit is hit the same as having a foreclosure. So the Short sale does not save their credit.

If the short sale is approved, the borrower is likely to have a deficiency judgment or a tax liability for the "forgiven" debt. The borrower will probably exit the transaction drained of resources and exhausted from the ordeal. Just delaying the foreclosure with simple legal maneuvers, staying in the house longer and not cashing in all liquid assets has the borrower leaving in better condition.

The buyer has be in very special circumstances for the short sale to make any sense. The indefinite status of the transaction and undetermined waiting just don't work for most buyers. That is, if you define a buyer as someone who wants to actually buy a property.

The market suffers, also, from short sales. Properties are listed at prices which they may not be able to be purchased. Properties are listed as "Active" when there are 2 offers under review by the bank, and 7 backup offers in the agents file folder. MLS gives an impression of more properties available that are actually available, and at prices lower than they might be purchased, and on the market longer than they would be if only the offer(s) in hand could be approved.

So. Who benefits from short sales? Do we as REALTORS really provide any beneficial service to our sellers with short sales? Why do we do them except to generate income? Could listing a short sale actually be in violation of the REALTOR Code of Ethics?

Matt Peters, Albuquerque-Rio Rancho, New Mexico Matt@REALTOR.com
(505) 269-4791 . . . . Your Direct Line to RESULTS
www.IdealNM.com www.Relocation2Albuquerque.com

I am actually appalled by some of these comments here. I am almost at a loss for words. First thing that appalls me is the lack of respect for the real estate agent. Throughout this post, I have read the theme of "you should refer short sales to a real professional" (IE an attorney). Could someone explain to me when a licensed real estate person was NOT a "real professional"? Please show our profession a little more respect.

Next, sounds like agents are confused as to what their role is in a short sale. You do the SAME thing as in a "regular" transaction. You DO NOT "negotiate! Just because you speak to someone at a bank and their title may be Negotiator, you are doing the SAME thing as you would with a traditional seller. As an "agent" you merely represent someone. If the bank "counters" an offer that you have submitted (usually from another agent who represents their own client), you take that counter back to your seller and the buyers agent and merely present the counter. Where are you negotiating?

I do not know one agent in this country where their job is to "negotiate". "AGENTS", of ANY kind, whether it be a real estate agent, insurance agent, sports agent, is strictly of representation. Your job is to be able to read and understand. Present to your client what the contract/offer states and the CLIENT will make a decision.

No licensed "agent" (of any kind) has the legal responsibility to negotiate whereas Attorneys licenses state clearly that they CAN negotiate.

Please take the time to understand what your job really is in a short sale. The seller is not giving you authority to "negotiate" on their behalf and you shouldnt put it out there that you are negotiating. YOU'RE NOT! Attorneys that do short sales are not even negotiating.

The main thing that you have to do within a short sale is to disclose disclose disclose. And your local board should have good disclosures. If they don't, just have a "real professional" draw them up for you.

Great blog. I want to learn all I can about these short sales. I know every one is a little different. I love all this info. thx again!

Matt,

Unfortunately, MOST of your post is purely incorrect. Where do I start?

1. Mortgage Lates - you don't have to be "late" on your mortgage to do a short sale. Thats an illusion that many believe. You MUST show a hardship.

2. A 90 day late mortgage on your credit IS NOT the same as a foreclosure. I actually giggled at that. We have tracked sooooo many short sales and the credit impact, that your statement is so far from correct but I don't want to call it a lie but its incorrect.....Sir.

3. The tax liability - MOST of the short sales being done today are probably from loans between 2006 and the present. If you know the law Bush signed into effect, then the tax liability is forgiven on owner occupied residences.

4. Not sure why the BUYER has to be in "special circumstances"!

5. I DO agree with your assessment of the MLS and what it truly represents in the local marketplace.

Mori, I agree with you, Matt's post has alot of holes in it. You are correct, we have done many short sales in which the seller was not late.

I also agree with another post that we are NOT negotiating, we facilitate the transaction, we can NOT and do NOT negotiate anything. Real Estate Agents are not party to the contract. Submitting a short sale package to the lender is not negotiating by any means.

We are OK with agents who do not like short sales, DON'T GET INVOLVED if you do not understand or like short sales. You can choose who you work with and what you work on.

Morning Tina, The short sale segment is indeed less charted than traditional sales. Having the insight to refer out to someone more experienced is vital.

Tina, I am glad that you brought up this subject, it is clear to me that we cannot shy away from short sales but we cannot ignore them either. Here in sunny California we have somewhere in the vicinity of about 65% of the inventory being distress properties, we have to learn how to deal with them otherwise we might not be in business any more!

If we are afraid of being sued, why are we in real estate? this profession of ours is ridiculously open to lawsuits for every step we take! "The Realtor did not show me this, the Realtor did not tell me this, the Realtor did not informed of this etc. etc. we get sued because we call softwood... hardwood!

The way I look at it, we must disclose to the seller the fact that the seller needs legal advise in writing and then proceed with the transaction and deal with the 2 sellers: the bank and the owner of the property. Most people do not have the money to hire an attorney, their Realtor is their only choice. I have done a couple of short sales in the last two years, still don't like them but I must learn how to maneuver through the mess as any other seller, attorney, Realtor, loan consultant etc. etc.

It is our job to help them with the house, we should not be afraid. Just by reading posts like yours Tina, I have learned a few things here and there. These types of sales will stay with us for a long time. My suggestion: Learn as much as you can, research, ask questions, participate in discussions like this one and be ready to serve your client to the best of your knowledge. Take the precausions of advising the client in writing that they need to know what is at stake and that they should pay for a consultation with a CPA or and Attorney so they are informed of their legal rights and consequences.

Thank you Tina for making me think about this, that is what a good post is all about. Well deserving of a gold star, Thanks a lot house!

Antonio

My limited experience with short sales has left me with these observations:

1.Document everything, phone calls, meetings, emails, faxes etc. Be prepared to resubmit information several times to make sure everything is received by the lender.

2.The lenders do not seem to have systems or processes in place to make the transaction go smoothly. Extreme patience and follow up is needed to get answers in a timely fashion and to be able to go forward.

3.Just as with copiers and other office machines, ALWAYS speak nicely of the bank's short sale negotiator, soft comments, gentle nudges and LOTS of positive feedback get better and faster results.

I am not an expert by any means, have only had one short sale listing in my short time as a Realtor, but I started in this market and I won't shy away from them if it will help my clients in the long run. Oh, and I am in California if that makes a difference.

Tina, I agree with you completely. Processing and negotiating short sales is a time-consuming effort and is best left to those who do nothing else, all day every day. Since Fannie Mae recently announced that a realtor's commission is not to be negotiated, why would an agent step over the dollars to get to the dimes by processing their own short sales? I don't get it.

Cahterine, not sure if you mean they are not negotiating and making it 6% with no negotiation or you think Fannie and Freddie will cut and then there is no negotiation.?.?.? Fannie has a policy in place regarding that very subject ---> http://blog.miamire.com/fannie-mae-stops-cutting-real-estate-commissions-a-short-sale

Now, "stepping over dollars to get the dimes"? Not sure if you follow major real estate markets but 65% (on the low side) up to 80% of homes on the market are short sales, REO's or some form of distressed situation. Its just good business sense to follow the trends, especially, while most of your competition is staying away from it...

I wish there was a statistic that had the number of full time agents 3 years ago vs NOW. That statistic will show why you should be "dealing with the dimes..."

Tina - Great post. I truly appreciate reading all of the comments. Thanks to everyone who has taken time to discuss. I am currently waiting on 'the bank' to respond to an offer my client has made. It is quite evident that short sales are going to be with us for some time. As Mori stated, we are professionals, and sharing these comments helps keep all of us 'informed' and/or encourages us to remain so. I'm new to AR, and am learning a lot from everyone.

Tina,

Great reading. I have tried about 10 short sales as a Buyer Agent, still waiting for one to really work all the way.

Is there any kind of statistic anywhere as to the percentage that go to the closing table? In my opinion the banks/lenders are totally mismanaging the short sale process. Shame on them.

Tons of money are lost in the process. I wonder if the share holders have any clue as to what is happening, and the price tag for it all???

Why don't they hire Real Estate experts to run the show, on a consultant basis?

Sigh, I think I am giving up on short sales!

peterwjust.com

I am working with a short sale and the realtor on the listing side has turned it over to a company to handle the negotiantions, etc... We'll see how it goes. I think anyone doing short sales should get the CDPE designation. I am getting it and hear it is extrememly helpful.

Of course a real estate agent should not be negotiating with a lender for a short seller. Neither should a real estate agent be negotiating for a buyer.

Sellers negotiate with the lender and that may be through their agent. Buyers negotiate with the sellers and that will usually be through their agent.

Negotiating involves making decisions and that's not our job.

I know that many agents like to believe that they can negotiate for their buyer or seller client, but that is assuming a lot more risk than this real estate broker is willing to do.

Be careful out there. The lawsuits and board and commission complaints over short sales has not even begun.

If you call yourself an expert anything, you'd better have a higher level of training and certification that identifies you as just that.

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