Real Estate Blog - When NOT To Take A Short Sale Listing

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When NOT To Take A Short Sale Listing

Short sale listings

Today, I turned down a listing. It was not easy. It was a short sale. When listing a short sale, there are certain parameters that must be met. Here they are:

1. The seller must allow you to set the price. You know the market.

2. The seller must allow you to adjust the price based on your judgment.

3. The seller must provide all financial documentation necessary to complete the sale in a timely manner.

4. The seller must authorize you to speak with the lender on his behalf.

5. The listing period must be longer than six months. Allow time for short sale processing, so make it one year.

6. The seller must be reasonable with his expectations for a short sale.

7. The seller must trust you.

Short sale outcomes are not guaranteed. The seller may have to bring a cash contribution to the closing. The seller may have to agree to a promissory note. The seller will probably get a 1099-C for cancelled debt. He may get a deficiency judgment and be responsible for the remaining balance. Or the short sale may be denied.

In the case today, the seller had returned my listing agreement marked up with additional terms. He added that the short sale lender would remove negative reporting from credit bureaus, not issue a 1099-C, waive all rights to a deficiency judgment and relieve the seller of any further obligation.

I informed the seller that these demands were not likely to be met. I would not agree to an undertaking with unreasonable expectations. He insisted. I declined the listing. Would you?

It's Wendy!

Wendy Rulnick, Broker, CRP, CRS, GRI, ABR Rulnick Realty, Inc.

Destin FL Real Estate

Destin Short Sales & Pre Foreclosure Help.

www.ShortSaleSuperstars.com

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Call toll-free 1-877-ITS-WNDY (1-877-487-9639) or local 850-650-7883 ext 204

Email Wendy: itswendy@rulnickrealty.com

Wendy is a short sale and pre-foreclosure specialist and has been featured in "Kiplinger Personal Finance Magazine" and "Florida Realtor Magazine". Call Wendy Rulnick, Broker/Owner,to list and sell your home or condo on the Emerald Coast of Florida in Walton, Okaloosa and Santa Rosa County- Destin, Santa Rosa Beach, Fort Walton Beach, Niceville, Bluewater Bay, Navarre, Seagrove Beach, Watercolor, Sandestin, Seaside, Crestview, Rosemary Beach, Mary Esther, Shalimar, Eglin AFB, Hurlburt Field.

Posted by Wendy Rulnick "Its Wendy!" Destin Short Sales on 10/14/2009 06:25 PM

Comments (24)

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destin short sales, short sale listings, 1099c, tax implications short sale, promissory note, cash contribution, credit

Originally posted at: Destin Short Sales- Emerald Coast Florida Real Estate: When NOT To Take A Short Sale Listing

Post is included in group: Short Sale Support Group
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24 Comments on When NOT To Take A Short Sale Listing

OCT

Wendy,

"The seller will probably get a 1099-C for canceled debt. He may also get a deficiency judgment and be responsible for the remaining balance"

It's eather or! If the bank goes after a deficiency there is no forgivness! If the bank forgives any of the balance they have no choice but to file a 1099! The bank doesn't have the option of iggiorning the Federal law.

Bill

It appears so, Bill. Bank of America's standard approval says they reserve the right to seek a deficiency judgment. If they do that and issued a 1099-C it seems they might have given up the right to pursue...

Wendy, I have taken listings like that and regretted it later, I say NO

Wendy,

When a seller tries to add conditions no matter what they are, I always turn down the listing, even if it is not a short sale, I have my standard methods of doing business. AND SELLER CONDITIONS are never figured in my equation.

Good Post and better luck with the next distressed seller !!

Wendy,

That's very interesting! It would seem to this laymen that if they 1099ed you telling the IRS rhey had forgiven the debt and then tried to collect or even show a balance, it would be a positive defense.

There are so many troubled accounts that the banks and even their staff attorneys are proving the "Peter Factor!" The collection companies never did care about little details like the law.

Bill

Bill- You are correct on your premises and I agree with you, too bad the banks don't play by the obvious rules. They bank on sellers not taking them to court over these extortion tactics.

Wendy- First of all, this should be a public post so that the sellers who are thinking this way can get a clue. Don't take the listing. The issue of the 1099 is not within our control. Even if the owner lives in the house for 2 out of 5 years to qualify for the exemption the IRS requires the banks to issue the 1099 and then the seller has to take that to his accountant and have it exempted because of the forgiveness act. But there is NO bank that is NOT going to obey the IRS on this. If the seller does not understand this, than he can get foreclosed on and still get a 1099! Katerina

To have accepted the listing under those terms would created false expectations a least, if not mal-practice. No one I know can force a person or a bank to accept terms counter to their interest. The client needed to hear a firm no, followed up with why, and further followed up with why their terms weren't really in their interest.

Will another agent take it and run...? Possibly, let them spin their wheels. If the sellers are lucky, they will get a couple of firm, but polite no's, and come back to you. Good choice.

OCT

Could the real truth be: This is just an informed seller who realizes that without gaining those things he might as well suffer foreclosure?

In states where a deficiency judgment is not possible, he might have better luck in a short sale negotiation on that one of his three points.

As to the 1099 demand, he may only need some information about how that is really going to work in his favor if he qualifies for the exemption. If he doesn't qualify, he's clearly out of luck.

Without a written commitment from the lender as to how the loan will be reported to credit bureaus he will not gain much on the rebound - his mortgage lates will kill his loan chances anyway.

Exception: The only hope he may have to qualify for a new home sooner than later is if there is general regulatory or congressional action to ease the credit impact of short sales conducted in this crisis time. Could happen.

Wendy, it sound like this seller had some legal advice from a lawyer not very well versed in short sales.

Smart move Wendy. It always makes our jobs difficult when potential clients listen to uninformed friends or professionals with little or no experience!

In a word...Yes....Sellers cannot reasonably....or unreasonably in this case...ask, expect, demand that issues beyond the control of a listing agent be part of the contract....the number one rule we have is that the sellers be cooperative in every way...price, cleaning up, showings, etc....this seller flunked those issues and just saying BYE is the best thing...no one will BUY....but you watch...there will be an agent that will "buy" the listing and when the demands are not/cannot be met...oh wellllll...you did the right thing of course !

Jeff - That was my gut instinct.

Jimmy - Right, set your business parameters.

Bill - The future collections/deficiency pursuits should prove interesting.

Katerina - Yes, and I made the post public, thank you. Was just gun-shy due to the last "incident" LOL

Dan - The false expectations and malpractice were haunting thoughts.

Jim - Florida allows deficiency judgments. Yes, 1099 C and tax implications might be lessened with property cpa advice. We'll have to see just how all these short sale folks are really affected in a couple of years when they are ready to buy again.

Laura - Thank you, energy better spent elsewhere.

Sally & David - Thank you, trusted my instincts.

Sounds simple enough. I wonder is the seller will do a little more research and get back to you? I guess the more likely scenario is another agent saying ok and taking the listing.

Wendy, I agree with you and would have walked away as well. Why hire a professional when they are not going to listen or trust your experience anyway?

Short sales are difficult and I hesitate getting involved with them anytime the seller seems less than 100% in the game with me. If they are not, you can work for months only to have it fall apart because they can't get an updated bank statement to you or won't pay the overdue HOA fees of $50 or because they insist on digging up that rose bush in the back yard and taking it with them.

I feel sorry for the agent who did take the listing... it's going to be a rocky road ahead.

Hi, Wendy. In 20 minutes, I am goint to teach a Webinar on Short Sale Red Flags. Why bother? You've summed most of them up in this post!

Hi Wendy, The funny thing about this situation is that the seller is changing things in your listing agreement. In reality you have no control as to what his lender is or is NOT going to do. This agreement cannot be made with you in the first place. All of the items he adjusted are at the sole discretion of his lender and no one else. I realize that you would be doing the negotations for him, but that lender makes the final decisions.

Bill - The seller researched. Next !

Angie - I do feel right about my decision.

Melissa - Thank you, Sweetie!!!

Sandy - I thought about what you are saying, too. It is not between me and the seller.

I heard something wise today as it relates to short sales"

"The Seller's have to want the deal to close even more than the Realtors for the transaction to be successful."

Wendy, I'm in agreement with and would not have taken the listing either. It will not do the Seller any good if he hires a professional and then doesn't take the professionals advice. This is not a win-win situation. You would have just wasted your time and effort and I'm sure you feel your time is way too valuable to be wasted on a Seller who doesn't trust you.

I wouldn't take the listing, but I wouldn't walk away either. But that's me...

Anyway, in regards to:

"1. The seller must allow you to set the price. You know the market. 2. The seller must allow you to adjust the price based on your judgment."

Are you finding sellers trying to control price? If so, what is the logic behind their objections?

Wendy..I would try to educate the Buyer with real life expectations and if they are still fixated on their conditions then I'd walk. Wouldn't even hang around.

On a separate note...I'm seeing more and more "Charge-off as collectable debt" on 2nd mortgages. Anyone hear of possible relief to primary residence Sellers on collectable debts down the road as the Mortgage Deficiency Act provided relief from 1099's? I've had some Sellers throw in the towel because of this.

OCT

Wendy - I have turned away short sale listings also for similar reasons. You are absolutely right about what you need from the seller to complete a successful short sale.

OCT

Wendy, so true. I let a short sale go after 30 days. The seller would not do anything I requested. Needless to say, it went to foreclosure last week.

Hi Wendy... I agree with your handling of this situation. If there are unrealistic expectations from the outset, it will rarely lead anywhere positive for any of the parties involved.

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