LENN HAD AN EPIPHANY! SHORT SALE MISCONCEPTIONS COULD CAUSE MISSED OPPORTUNITIES FOR AGENTS.

Unfortunately in this economic climate many (and I mean almost all) sellers don't have the means to come to the table with cash in hand to make up the difference.  And in most of the short sales we've experienced the seller's are $100,000 or more upside down.  Very few people have that amount of cash available, if they did they probably wouldn't be going through the short sale process.  That being said, we've realized that short sales are going to BE the market here for the next 3-5 years.  If an agent shies away from them they're not going to be doing much business.  Hopefully the process will become a bit more expedient as time wears on.  Thanks for the poignant post Lenn (as always) and best of luck to you.

Banks are so short-sighted when they won't take bona fida short-sale offer.  What are they thinking?  That they will make more money if they foreclose?  Well, let's think about that for a minute.  If they foreclose, do they get a bigger tax break because they write off the whole loan amount, then the property becomes REO, and they get to sell it.  Hmmm.   Let's do some arithmetic.

Foreclose Scenario: Seller owes $500,000.  Bank forecloses and takes $500,000 loss plus legal fees, etc (but let's keep the math simple for a minute).  Then six months to a year later the bank sells the foreclosure property for $250,000.  The swing is $750,000!!!  Sounds like a windfall (pronounced "ka-ching") to me.

Short-sale Scenario:  Sellers owes $500,000.  Short-sale offer is $400,000.  The bank accepts tge short-sale offer and loses $100,000 but is paid $400,000 at the time of settlement.  The swing is only $100,000.  Doesn't sound like a windfall to me.

I wonder if this isn't the banks' accountants' dirty little secret that they haven't told us about and could explain why they're rather take a seller to foreclosure than accept a short-sale.

Let's face it, banks made plenty of money when they made the loan, collected interest along the way, and will make plenty of money again in the future.  They helped create this problem with crazy "no doc" loans and other loans requiring little if any qualification by the buyer.  Now the banks need to help solve this problem.  I whole heartedly believe that foreclosures hurt the community and the marketplace as much if not more than they punish the distressed sellers while short-sales minimize the impact.

Great post Lenn, too bad there is not a one size fits all short sale, would make things easier here in Phoenix.  Arizona is an Anti-Deficiency state, something many are taking advantage of.  It will be interesting to see if there are any repercussions from all these short sales 5 years from now.

Big business wins again.  Banks won when prices were over-inflated and they were lending recklessly.  They win when they assess deficiency judgements.  They win when they file for foreclosure, get the writeoff then re-market the property and profit from multiple offers.  They win again when we get stuck with the bill for it all.  And this is just what we know about.

Lenn - This is an excellent post.  I would love this to be a "public commentary".  Let me know if you would give me permission to print this out and distribute this to my office/agents.  I am bookmarking this and going to read over this again and again.   I really like the comment by Debe (#11) as this may be the only way I could add more and more S/S to my workload.  I prefer the happy buyers in my car and regular/re-sale listings...but the times they are a changing....

Lenn, great blog.  I reblogged.  Thanks

Lenn, this is a great post. Maybe if we keep hammering this point home the banks will finally get it!

Short sales are a huge portion of our market here in Orange County, CA, and we've had to learn how to deal with them.

I've had short sales where the bank took the loss without promissory notes or payments to the banks, others where the seller made up the deficiencey entirely and others where the sellers brought some, but not all money owed to closing.

California's a non-recourse state for purchase money, and that can make a big difference.

Lenn, I NEVER thought of short sale terminology years ago when sellers brought the deficient dollars to closing- they were just out of luck, and requesting that the bank pay it was unthinkable. Exactly as you've stated, it was NEVER (in my limited experience with unlucky, often relocating families) the sums required today. Interesting times right now, but after much hemming and hawing, we've taken the plunge- too many sellers in need of the "opportunity"- but absent the willingness to spend the huge number of hours required to make it happen, and knowing that partial engagement WON'T cut it, the decision was a tough one that wasn't taken lightly. 

*except, must add: there is a large part of me that would have enormous difficulty, were a potential seller to wonder if their $100k in a retirement fund should go to a check at closing....suggesting that it makes any kind of sense. What a mess we're in.

Wow, I never knew the disticntion, Lenn. But it does make sense.

My mentor has a listing like this, where the seller owes more than what the house will sell for, but is bringing cash to the closing to make up the difference. Curious, though, my mentor didn't qualify it as a "short sale". Hmmm...

From the desk of David Dee,

Lenn, it's amazing sometimes the actions banks take. Some would rather foreclose than to approve a shortsale. One of the agents I know experienced this last year.

Lenn - I have had short sales where the seller has paid the shortage at closing rather than the bank.  My listings.  Yes, not every seller qualifies for financial hardship.  Recently I have started to see that everybody assumes it's the bank that should take the loss, even when the seller has money in the bank. How is that fair?  In the long run it effects other consumers and will it lead to more bail-outs to come? 

I really enjoy reading your archived posts Lenn Harley - hope you are doing well - might we see you back in the 'Rain some day?