The Psychology of a Distressed Borrower

Short sale agents are not psychologists.  For anyone to truly understand why people do what they do, even knowing it may harm them, one would have to be that person. Even then we may not have the resources to understand.

Why one person chooses to take action quickly and another person sits in denial and waits until it's too late relates to the psychology of a distressed borrower and the emotions tied to their situation. 

My experience in working with distressed consumers/borrowers is that most of them are under a lot of stress.  The higher the stress the less coping skills they have.

They may also be:

• In denial.  They are simply not ready to face reality.  Worse yet, they may have spent far too long trying to get a loan modification because they do not want to let go of their dream of home ownership. 

• Angry and don’t care anymore. They may begin to neglect taking care of the home because deep inside they know they will not be living there much longer.

• Feel guilt and shame. They procrastinate and hide because they don't want anyone to know about their situation.

• Fearful of unwanted change and fear of the unknown. Thoughts of "Where am I going to live?" may consume a distressed homeowner. This fear may cause a distressed borrower to become incapable of making decisions. 

When we are stressed decisions are hard to make. People deal with stress differently. Some people

• Become indifferent and shut down
• Look at the situation logically
• Are emotional bombs

Short sale agents need to be able to understand the psychology of a distressed borrower. We must establish a relationship of trust and demonstrate that we are there to help. Our job is to facilitate realistic decision making.  We can be most effective if we follow a step by step process.

Step 1: Borrower needs to acknowledge there is a financial problem. Agents need to gather information from the borrower; provide educational material; and spend the time consulting to ensure the borrower understands all options. Red Flag Warning: Many agents don't understand a borrowers options and only want the listing! Beware of hiring the wrong agent!

Step 2: Make a Plan.  This is done by evaluating all options and alternatives. Short Sale Agents need to be aligned with the borrowers best interest.  We need to clarify the process and ensure understanding. We need to provide resources for tax and legal consultations.  Borrowers then need to make a decision to:

1. Wait and see what happens.
2. Do nothing.
3. Move forward with their decision. 

Step 3:  Develop a Plan of Action.  Agents must clarify responsibilities and provide manageable goals with time lines and deadlines.  We must also outline our strategy and expectations. In other words, who will do what, by when. Once all parties are in agreement, we are ready to sign the paperwork and execute the plan.

Step 4: Take action and complete the plan. Working a short sale means we must implement a project plan. A short sale requires follow up and follow through. Without systems and processes in place to support the project plan an agent will likely fail miserably at the task. Short sales require constant monitoring and evaluation. We need to check in and let the seller know that the business of selling the house is moving forward and that their move out date is getting closer.  We need to be in constant communication with the seller and continually provide the support, tools and resources necessary to help navigate a seller through the short sale process. 

Agents do not need a psychology degree to offer compassion and understanding. We need to understand that a short sale is more than selling a home for the sellers. The level of stress the seller is feeling is typically very high. We must be mindful of that and at the same time keep the sellers focused on the end goal of avoiding foreclosure. A little heart and a lot of skill is what can make this happen.

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Kathleen Daniels, Broker Associate, Short Sale Agent, Certified HAFA Specialist (CHS), and Certified Distressed Property Expert (CDPE), Certified Short Sale Negotiator (CSSN), and REO Default Certified Professional (RDCPro), serving San Jose and surrounding San Jose Communities.

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