SHORT SALES: THE APPROVED, THE POSSIBLE AND THE WISHING WELL

HOW MANY ARE SHORT SALE OPPORTUNITY AND HOW MANY ARE LISTING OPPORTUNITIES?

                              ***      WARNING:  HARD CORE REAL ESTATE INFORMATION     ***

SHORT SALE ACTIVITY IS OFTEN UNCHARTED TERRITORY FOR MANY AGENTS AND BROKERS.

We recently spent about 6 hours researching short sales in the MD/VA area to prepare a training class for our agents who are faced with more and more listings containing the word "short sale".  Agents who are advertising for and offering to list short sales often have never closed a short sale contract. 

"SHORT SALE" has become "short hand" for the description of a house that an owner needs to sell, has tried to sell and is unable to sell. 

The term short sale has been substituted by agents in the MLS listings for "must sell" or "make an offer", all short hand for desperate seller.  We've always had short sales.  But, until the last year or so, we have had a proliferation of homes advertised as short sales when in fact, they are not all so.

SHORT SALES ARE A SMALL PERCENTAGE OF OVER ALL LISTINGS.  There are 6,599 residential listings in Montgomery County, MD 

In the MLS for homes for sale today in Montgomery County, Maryland, and this is representative of all of the densely populated areas of the DC/MD/VA market area within the Baltimore/DC area, there are 177 homes advertised as "SHORT SALE".  There are 71 homes listed as "foreclosure and/or REO"  The listing agents for the short sales are not very concentrated although a few agents are carrying 5-6 listings, most have only 1 or 2.  Foreclosure/REO sales, on the other hand, are concentrated with a few agents and I am familiar with several of these agents as foreclosure specialists.  In fact, we've sold some of these bank owned homes and the processes are highly routinized and efficient. 

Short sales, however, appear to be taken by an agent who sees it as an opportunity for a listing, but that doesn't mean that they have any short sale experience. 

Below is a profile of a cross section of homes that are advertised in the MLS as "short sale" homes.
There are several levels of short sale listings:

      Bank Approved Short Sale
        Approved Short Sale
        Short Sale
        Short Sale Opportunity
        Possible Short Sale

THE SELLER WILL HAVE TO BE APPROVED.  We contacted a number of listing agents for these listings to determine the true picture.  Few of the sellers have submitted the application, financial statements, assets/liabilities to the bank to determine if the bank will even consider a short sale.  It that has been done, then you have a viable short sale listing.  Some banks, however, don't do much until they have an offer.  Fact is, banks don't accept short sales from sellers with assets to "cure".  You can't sell a residential property with a short sale if you own property, cash or other significant liquid or convertable assets.  Short sales are a concession and banks expect home owners to make every effort to cure before granting his significant concession.  Sellers have to be prepared to open all of their finances to the bank so the bank knows that there are no assets that can offset the deficiency.  All the while, interest is accruing on the note and the arrearage.

Bank Approved Short Sale
We contacted 4 agents for homes advertising "bank approved short sale" and on only two has the seller actually been in touch with the mortgage company.  One agent thought that a short sale was automatic.

Approved Short Sale
Of the 5 agents we contacted, none of the homes had been "approved" and only one owner had presented
any contracts to the mortgage company, which was rejected.

Short Sale
The owner is behind in their payments.  Make an offer and we'll present it to the bank.  No, the owner has not
contacted the bank.  No, the owner cannot settle at the present list price.  

Short Sale Opportunity
See "Short Sale" above.

Possible Short Sale
See "Short Sale" above

EXAMPLES OF HOMES SOLD ADVERTISED AS SHORT SALES
                                              List Price        Sold Price     DOM
Bank Approved                 369,000         230,000         279
Bank Approved                 375,000         350,000         237
Approved Short Sale       499,000         520,000         228
Approved Short Sale    1,320,280     1,199,000         244
Possible Short Sale           421,666        490,000         250
Short Sale                           310,000         310,000         167
Short Sale                           424,000         415,000         160
Short Sale Opportunity   425,000         400,000         298
Short Sale Opportunity   383,000         485,000           93

We contacted 17 listing agents selected at random.  All were offering "short sale" in the Agent Comments. 
Of the listing agents we spoke with, only one has closed a short sale, but it was as a selling agent, not a listing
agent.  So, the experience level is quite low.  Many did not understand that short sales are not automatic. 

The list prices appeared to be a sum of what the owner owed, the real estate commission and some "walking
away" money.  Clearly, the 5-10% by which market values have fallen in some of our areas have hit owner who
purchased 100%.  Many of the homes offered as short sales are owned by real estate agents and brokers
and loan officers and the homes have never been occupied.  These are real estate practitioners who purchased
at the peak of the market in late 2005 and, I found hard to believe, many in 2006. 

ARE THE "SHORT SALES" SELLING??
There have been 21 closed sales of homes advertised as "short sales" in 2007.  Clearly, additional homes sold as short sales that may not have been advertised as such.  However, 21 short sales is a very small percentage of the numbers advertised as short sale opportunity with about 177 listed as of today.  Most of the homes that were advertised as short sales sold for list or slightly below.  Short sale is not yet a keystroke selection in listings.  The information is in the Agent Comments.  "Pre-foreclosure" is rarely used.

It can be assumed that a number of the homes advertised as short sales are going to foreclosure, deed in lieu of foreclosure, or the owner managed a work-out or refinanced. 

PROBLEMS WITH SHORT SALES
The agents in the Homefinders network closed 3 short sales in the past 4 months.  Of the 3 closed, none were "bank approved", "approved" prior to advertising the home as a short sale.  We also wrote 2 additional contracts that were rejected and the buyers wouldn't pay more than their original offer which was woefully low, about than 50% of market value, a percentage that bargain hunting home buyers love to offer.  Short sales have been around forever and we don't find that the procedures have changed over the years.  The only that that has changed significantly is the media coverage.



  • *Listing agents rarely know that the owner/seller is in default when they take the listing.
    *Short sales surface when the title company contacts the bank for the seller pay-off.
    *Selling agents rarely understand that the bank must approve a seller for a short sale.
    *Buyers often believe that banks will sell homes far below what is owed. 
    *Banks believe that buyers will always accept an offer that reduces their agent's commission.
    *Listing agents believe that the bank dictates the commission to the buyer's agent.  
      

PREPARE YOUR BUYER FOR A SHORT SALE OFFER
Get your buyer pre-approved.  If the buyer is pre-approved, the contract is completely in order with all addenda, disclosures and notices completed when the contract is presented, the mortgage company or bank will be much more receptive.  If and when the bank counters the offer and presents additional documents for the buyer to accept and sign, do it quickly.  If the buyer needs legal advice, do it quickly and if the attorney insists on editing the bank addenda, expect the bank to reject.  The bank addenda is prepared to protect the bank.  Often a local title attorney is helpful in explaining the bank addenda to the buyer if the agent is unable to do so.  That is usually sufficient to give the buyer comfort that the documents are for information.  Of course, if an agent has experience with short sales, they can usually explain the bank documents and get them signed quickly.  I have found that when an agent becomes overly cautious (suspicious) about bank documents, the agent doesn't understand and can't explain to the buyer the meaning.  This is also true of the listing agent who thought that
all they had to do was get an offer and send it to the bank and they'd get an answer quickly.  There are a number of understandings and documents that must be completed by the owner/seller to prepare for acceptance/counter or rejection of a contract offer. 

SHORT SALES AREN'T GOING TO GO AWAY, SO TRAINING WILL FOLLOW
Since there is no standardization of short sale procedures within the financial industry, I believe that agents are taking these listings as opportunities for business because the market is so slow and buyers are scarce.  With the exception of the 50% buyers, few buyers have any understanding of what short sale buying means and fewer have the patience to wait for the offer, counter offer process which, in most cases, is much slower than a normal sale.

PROTECT YOUR COMMISSION
On one of our short sales closed, the bank did reduce the commission.  The selling agent accepted the reduced fee and listened to Lenn rant and rave about it for about 5 minutes.  That sale took 5 months and the listing agent had no short sale experience.  Another agent made a $400 broker credit to the buyer in order to close which made sense.  She had worked with that buyer who had limited resources for 6 months.  Lenn didn't rant and rave because that credit went to the buyer. 

If a property is sold as a "short sale" or "possible short sale", buyers agents must protect their commission by refusing to reduce or modify your commission when the listing office requests, which they quite often do.  The listing broker is paying your commission.  If they agree to reduce the listing commission, fine.  The listing broker still owes the commission offered in the MLS as a co-op.  There is no 50-50 rule.  Agents who do not perform due diligence when researching a potential listing can't expect buyers agents to subsidize the listing office when the sale turns into a short sale. 

If the MLS listing states that the house is a short sale and the listing broker cannot make any assurance that the co-op amount will be paid, unless the buyer's agent is desperate and willing to work for hand-outs, don't show the property. 

The new real estate cottage industry:  SHORT SALE TRAINING

 

  • NOTICE TO READERS:  Read Bill Robert's comment below.  Very helpful information. 
  •                                            Read Stefan Scholl's comment below.  A recent experience.   
  •                                  Read Trent Chapman's comment below for additional information. 
  •                                 Read Jeanean Gendron's comment below for additional information.

 

Courtesy:  Homefinders.com, Lenn Harley, Broker, 800-711-7988

Short Sales and Foreclosures in MD and VA

 

86 Comments on SHORT SALES: THE APPROVED, THE POSSIBLE AND THE WISHING WELL

Great post, Lenn. You put a lot of work into your research, and the results are very much in line with what I see happening in California. I'd say your thoughts are dead to center. Here are a few of mine to add to yours:

  • Buyers don't understand short sales and DO think the bank will accept far less than list price, when the truth is the bank probably will NOT accept list price at all.
  • Many listing agents are clueless about what's involved and underestimate the amount of work involved.
  • Selling agents don't know how to counsel their clients to submit reasonable offers or to explain how long the process takes.
  • In our MLS, the commission split IS always 50/50 on short sales, however.
  • I get more hits on my short sale articles than any other article on my Web site, which shows the term is red hot right now.

11/19/2007 11:48 AM by Elizabeth Weintraub, Sacramento Real Estate Broker (Lyon Real Estate)

Lenn,

Just closed on one Friday and wrote a small synopsis on what step I take to get it to close and the bank to approve. Sometimes these types of deals will intimidate agents because of the complexity of the deals and the issues that follow. I personally thrive on them! Now that I have experinced a few they aren't that bad.

11/19/2007 11:49 AM by Neal Bloom-Realtor ® Assoc.-CRS-Weston FL (RE/MAX Premier Associates)

In my experience the biggest problem here is the agent that will take a short sale listing knowing so little about the process. You will have to file your clients financial statement as well as bank statements along with any purchase offers. If your client has the ability to make the payments or other assets to make up the loss, a short sale will not be approved.

11/19/2007 12:03 PM by Ron Parise (LocateHomes.com)

AQnother excellent post, Lenn.  So much press on both sides of this issue.  Sellers, buyers and agents really need to be clear about this situation.

11/19/2007 12:05 PM by Bill Gillhespy Fort Myers Beach Realtor (Century 21 Tripower Realty)

Elizabeth.  I have posted a number of articles with "foreclosure" stats.  I've received a number of consumer calls from them.  It works.

I just might post some "short sale" posts too.  I think it will get some traffic.

Lenn

11/19/2007 12:07 PM by Lenn Harley, Homefinders.com, MD & VA Real Estate

Lenn, Your post is an excellent resource for agents working sort sales. We closed a short sale a few months ago on the listing side. When we took the listing the sellers were not in default. It was a divorce situation. The wife left town shortly after the listing, and the husband stopped paying the mortgage. He also turned down several early offers and was very difficult to reach and converse with. The house was in a desirable neighborhood and had great bones but was filthy. My staging gave it a great look in the photos, and I was sure we could sell it.

One day we had a showing and I noticed a package on the table from the bank, I said to my husband, I bet this is a foreclosure notice. We asked the selle if he was behind and it all came out.  Anyway to make a long story short. I facilitated a short sale with the bank. and negatiated to my dying breath to retain our 6% commssion. They had said no way we never pay more than 5%.  We did have to pay for the home warranty since it was offered on MLS.

Ginger

 

11/19/2007 12:11 PM by Wilmington NC Real Estate Ginger & Roger Sala Keller Williams (Keller Williams Wilmington North Carolina)

Ron.  You are absolutely right.  The listing agents seem to think that these things are automatic.  They are far from it.  I'm going to add a blurb about that. 

Bill.  Agents and their clients seem to stumple through these sales.  I want our folks to be prepared. 

Neal.  You are right.  If the agents understood the process better, they could get throught them easier.

 

11/19/2007 12:11 PM by Lenn Harley, Homefinders.com, MD & VA Real Estate

Sadly, until there's a better way to enforce what shows up in MLS, agents will continue to advertise that about which they have no knowledge...

11/19/2007 12:14 PM by Leigh Brown Charlotte NC Broker/Owner (RE/MAX Signature Properties)

Thanks for the info! I had a client approach me recently saying a short sale may be an option after just speaking with his lender.  I also met with my broker to find out some of the procedures but the more I can learn the better.  Unfortunately these situations are going to be increase in the next few months in the Myrtle Beach market and like you mentioned there aren't too many informed agents here in our area...I may need to ask for advice later.

11/19/2007 12:17 PM by Amy Whiffen, REALTOR® - Myrtle Beach Real Estate (Eagle Realty - Myrtle Beach)

Ginger and Roger.  Good for you.  Sometimes experienced agents can read between the lines.  I would have paid for the Warranty too.  Small price to pay. 

Amy.  Active Rain is full of experienced agents and brokers who have done a number of short sales.  Write it and you'll get a lot of help.  In the end, though, real help must come from your broker who has the liability and risk of your actions.

Leigh.  I can see the opportunity for seller complaints when listing agents botch a short sale listing.  There is also the matter of the COE.  With the proliferation of brokers who don't provide supervision, I expect that we'll see some complaints by sellers. 

11/19/2007 12:32 PM by Lenn Harley, Homefinders.com, MD & VA Real Estate

Hi Lenn - many lessons in this post of yours.  I haven't ever done a short sale, in all these years, and would have to look to someone with experience in them to guide me through it.  Fortunately, so far, we've had very few short sales here that I'm aware of.  If that should happen, I've got a GREAT resource to help m out - YOUR POSTS!

Love the upside down picture - sad.

Ann

11/19/2007 12:35 PM by Portsmouth NH Real Estate ~ Ann Cummings (RE/MAX Coast to Coast - Portsmouth New Hampshire)

Lenn, this is about the best post I've seen on Active Rain over all time - at least all time I've been hanging out here.

In the VA/MD/DC area, we're not seeing enough of them to have agents who really know how to handle short sales, and I think this should be required reading for license renewal! 

Oh, and I flagged you for a feature.   You get my "5 Wow" award!

11/19/2007 12:36 PM by Patricia Kennedy (Evers & Company)

Patricia.  Thanks very much.  I greatly appreciate it.  I rarely get featured, but "HEY, it's worth a try."

I keep running into listings with "short sale" verbiage.  We settled a few lately so it was time.  I've got another idea about this too.  As soon as I check it out, I'll post it.

Thanks for the comments.

11/19/2007 12:45 PM by Lenn Harley, Homefinders.com, MD & VA Real Estate

Ann.  Thanks.  I included an "upside down" house on another post and got mail that I needed to look at the house because it was "messed up".  They didn't get the symbolism. 

Short sales are not that prevalent here either.  But, since we have the Washington Post, there is media coverage of the term. 

11/19/2007 12:49 PM by Lenn Harley, Homefinders.com, MD & VA Real Estate

Lenn - your post should be required reading for all agents listing a "short sale" and recommended reading for any agents representing buyers.

11/19/2007 12:58 PM by Sharon Simms St Pete Florida CRS CIPS CLHMS (RE/MAX Metro)

Lenn,

Excellent post packed with great information. I like how you went out and spoke with agents about their short sales and how they work them. I find that many agents are just too new and don't now how to facilitate a short sale. We have been doing them for almost 2 years now on a regular basis - in fact half of our listings are short sales. We have also brought in many buyers in on short sales.

Our difficulty is getting the bank to take a reasonable offer. What they think is reasonable and what we think is reasonable are two different things. I have noticed that some banks don't want to except a short sale "at a fair price as far as I'm concerned" and would rather foreclose and sell it themselves. I have seen many of the short sale listings that we have had or we have wrote offers on with our clients get foreclosed on only to see them sell for less than the offer presented at the time when it was a shortsale. Go figure. Great post - lots of work - good job!

Mike Lewis

11/19/2007 01:07 PM by Mike Lewis San Diego Realtor (Dawn Sells San Diego)

Lenn - I do believe you are a walking real estate university! You write the most amazing posts. A lot of the agents in our area send out post cards saying they will list their home on a short sale to save their credit. They actually put that on the card. Amazing isnt' it?

11/19/2007 01:28 PM by Linda Scanlan ~Selling All of North Texas (Hall Team Homes)

Lenn - Great informational post. I deal with about 3-4 short sales a year. They (short sales) are definitely not you average cup of tea. The thing I found out that is important to stress to all involved in the transaction is that short sale usually take much more time. This is especially true if the sellers haven't already contacted their bank. Thanks for sharing.

Todd Jones, Realtor - Selling Scranton, Clarks Summit Real Estate 

11/19/2007 01:36 PM by Todd Jones (Coldwell Banker Town & Country)

Excellent Information Lenn:

We are working with a few real SHORT SALES. It is for the most part unchrtered territory- but we are getting them sorted out.

 

11/19/2007 01:42 PM by Mott Kornicki • Real Estate (SIB Realty)

Lenn, Short sales are not a good use of a real estate agent's time. Too much work with too little chance of actually closing and getting paid.

There are too many factors which are not evident which get in the way of a short sale:

  • The mortgage servicer may not own the loan
  • The PMI policy might not allow for short sales
  • The bank might hold out hope for a redemption since historically 80% of defaults reinstate

Regardless of the reason, the odds on closing aren't good. Your position that the listing agent is not knowledgesable is also a factor in preventing the successful conclusion of the sale.

Bill Roberts

11/19/2007 01:52 PM by Bill Roberts - "Baby Boomer" Retirement Planning (Brooks and Dunphy Real Estate)

Lenn-

Great post.  Very timely for me as I just had a meeting this morning with clients about a short sale.  They started out ok when I took the listing, but have fallen behind now.  They had all ready talked with the lender and started to get some paperwork into them.  Today I told them we needed to be honest about what is happening and how I could help them with things like CMAs, comps and other paperwork. 

I think sometimes the toughest part of this process is getting the sellers to be honest and up front with their listing agent.

11/19/2007 01:55 PM by Kim Peasley-Parker (AgentOwned Realty)

Mott.  Are you working with buyers or sellers? 

Todd.  Absolutely.  That's why I described two that we recently closed.  One took 5 months and another took 6 months.

Linda.  I find that the most amazing thing I've read today.  Doesn't their broker review their advertising??  That's in the law in MD.

Mike.  That doesn't surprise me one bit.  The psyche of the average bank is that the bank simply performs a service and collects their money.  They don't negotiate.  Of course, there is that huge population of 50% buyers.

Sharon.  Thanks.  Just spreading the word.  It pays for agents to at least have an awareness of these thing in this market.

11/19/2007 01:56 PM by Lenn Harley, Homefinders.com, MD & VA Real Estate

Kim.  You are absolutely right.  Sometimes a sale doesn't turn short until the title company calls the lender for the pay-off. 

Bill.  Good points all.  That's why I wanted to show the numbers that there are actually very few of these contracts that close.  The few short sales that I've handled myself were not time consuming because I represent the buyers and we didn't even know it was going to be a short sale until title work was initiated.  Very poor or non-existant due diligence on the part of the listing agent.  I'm going to refer readers to your comment.  It's good information.  However, there is a short sale "wave" these days and in the interest of awareness, agents need to know how they work.

 

 

11/19/2007 02:02 PM by Lenn Harley, Homefinders.com, MD & VA Real Estate

Lenn - This particular broker is too busy recruiting new agents. Plus, the agent that's doing this is a "top producer" whom they let bend the rules all the time. I guess they'll only look at it when there's a problem. The broker here in Texas is ultimately responsible for their agents, but I don't believe it's a requirement to check out their advertising.

11/19/2007 02:11 PM by Linda Scanlan ~Selling All of North Texas (Hall Team Homes)

Lenn,

Great post! This is good information for those working on shortsales or planning to work on them. It is a nice summary of the different types of shortsales.

Dave

11/19/2007 02:12 PM by Dave D, Southern California Real Estate ~San Gabriel Valley (LA) & Orange County (Century 21 Excellence)

Hi Lenn, thanks for the post.  So much great info here!

11/19/2007 02:29 PM by Vickie Arcuri - Ft. Lauderdale Luxury Homes (EWM Realtors- Esslinger-Wooten-Maxwell, Inc.)

Lenn, This is exactly what I was looking for!  Do you mind if I print this out for reference?

Great  post, congrat's on the feature!

11/19/2007 02:38 PM by Karen Monsour,REALTOR® Broward,Palm Beach,Miami/Dade! 954-464-4194 anytime! (EXIT Team Realty)

Lenn, I have had the "50-50" rule invoked on me as a buyer agent several times by listing agents during negotiations.   It seems to be generally accepted that all sides should share in the pain.  My feeling is that just because the listing agent felt forced to cave on the total commission, doesn't obligate me to give up the percentage promised in the MLS.

11/19/2007 02:48 PM by Brian Schulman - Your Lancaster County, PA Real Estate Professional (Mastros Real Estate, Inc.)

Lenn,  I think we should all get CE credit for this!  What a great lesson in something I have no desire to do as a business practice but realize I'll end up dealing with on the odd occasion.  In fact my very first listing was upside down because they had taken a home equity line out, used that money to put down on the new house and the old house didn't sell for as much as they needed (right at the market turn).  So they came to the table with cash.  At least they could and we didn't have to start negotiating with the bank to take less than the amount owed. 

Now I'll look at the remarks section very differently.  As a buyer agent, I'm nervous about getting clients into these because of the time commitment on their part as well as the real possibility they won't get the house in the end after all.  Plus they all seem to have drunk the same kool-aid telling them they'll get a great buy at 50 cents on the dollar!  I've wondered about all of those comments that seem to be all over the map.  The ones I see with a particular broker are pretty consistent and have the right addenda on a website.

I missed a short sale CE class last week.  Bet they didn't cover this!!

11/19/2007 03:00 PM by Bethesda Real Estate Sales ~ Josette Skilling (Long & Foster Real Estate, Inc.)

just wondering, what if the potential short sale client submits financial statements and tax returns etc. as part of the short sale, and the lender then becomes aware that the seller lied on the original loan app as far as income, assets, liabilities, occupancy, etc????

11/19/2007 03:05 PM by Paul Warner -- Orange County, CA Appraiser (Warner & Associates)

Excellent post and information!  Hopefully many will take the time to read it through and understand more about what they need to do on both sides of the fence. 

11/19/2007 03:06 PM by Marc Grossman, GRI - Central Florida Real Estate Specialist (Keller Williams Premier Realty)

BTW, good post and great info that i'm sure is applicable all across the country.

11/19/2007 03:08 PM by Paul Warner -- Orange County, CA Appraiser (Warner & Associates)

Inexperienced listing agents are the worst part of trying to buy a short sale property.  Too many new agents really don't have a clue about them, but somebody told them to "just do a short sale" if a listing wasn't worth what the sellers owed.  The other part that makes me crazy is when the agent puts "5% commission!" or something similar on it, then in the private remarks says "all commissions, etc subject to lender approval." 

Back in the '90s, I taught my buyers to "write it, then forget it" with short sales.  (I generally discourage writing offers on short sales, unless I personally know that the listing agent is experienced and can get it through.)  If the lender eventually responded, we could decide whether or not to buy.  I got two closed, but several others didn't get answers until after the buyers had bought something else - sometimes several months later!

I've heard the statistics in my area of Orange County,CA are that less than one in four short sales go through! 

11/19/2007 03:36 PM by Vicki Lloyd ~ MBA, ACRE, e-PRO, Realtor Lake Forest, California (The Real Estate Professionals)

Lenn,

Very good Short Sale Info.. I write alot about this subjest! because it's the hot trend right now..

Tom Weiss

11/19/2007 03:48 PM by Thomas Weiss (Thomas R. Weiss)

Vicki.  I suspect that 1 in 4 closing is a pretty high percentage. 

I'm a cantankerous old goat when it comes to time consuming sales.  I name my price and if the buyers wants my services, they will agree to let me do what I have to do to collect it from the transaction or they pay the difference. 

All comissions, etc. subject to lender approval isn't how the co-op works.  I have to remind them that there is no 50/50 rule.  At least not around here.

 

11/19/2007 03:49 PM by Lenn Harley, Homefinders.com, MD & VA Real Estate

EXCELLENT points, Lenn.  Our "short sale" was bank approved for a short sale (verbal, which doesn't exist, but per the attorney was approved); it was within 17k of the amount owed, including commission, attorney fees, and all arrearages and misc. penalties; the sellers gave us information and contact info at their bank to establish the deficiency (which increased daily) within a few weeks of the listing; the house had been on the market for three years prior, in an effort to forestall the inevitable but had remained unsold; it should have been a no brainer.  Except, the bank decided against the offer; the seller walked away, not looking back because the bank felt that they shouldn't have to participate when the "value" was there (their appraiser overshot it by a good 70k) and the buyers, well, got their money back, but were as frustrated as everyone else.  A TRUE short sale is just emerging, I think- and we do need to understand it a whole lot better.  And, understand that the appraisal had better be within market range, or these deals will continue to crash (and foreclose).  THANK YOU!

11/19/2007 03:50 PM by Options Realty

That's a GREAT question, Paul!  I have had people that appeared to be short sale candidates tell me they were not calling the bank because they couldn't remember what they put on the loan application.  YIKES.

LENN--GREAT POST!  I have had it up to my eyeballs with distressed sellers being used as guinea pigs for short sale education.  I see overpriced short sales listed in MLS with no photos, measurements or descriptions and when I notify the listing agents (as a courtesy) that the properties made the auction list, they usually ask ME what they should do next.  How about running some comps and adding some photos when you get a chance--it's only been 90+DOM?  Good grief!    

11/19/2007 04:11 PM by AMANDA HALL*Broker*HALL TEAM HOMES* FORT WORTH REAL ESTATE (Serving all of DFW and surrounding areas within N Texas)

Dave.  Thanks.  Good luck if you handle any of them.  Have patience. 

Thomas.  Thanks.  We're going to see more in the next year. 

Paul.  We can at least get some fundamental information from each other.

Paul.  I suspect that the bank would do what is best for the bank.  You bring up a very interesting point.  A lot of the homes that are advertised for short sale in this ara are new construction purchased on "stated income" financing.  Now that the owners can't sell and their loan has reset, they are in deep trouble.  They are not gong to be able to qualify for a "no doc short sale".  I'm laughing out loud.

Josette.  As long as a buyer has patience and their agent is patient, the hard work falls to the listing agent.  Upside down defaulting sellers, especially ones who didn't fess up in the beginning, have a lot of work to do.  If they don't know the process, they can't guide the seller, who is often dragging their feet.

Marc.  Obviously, we've only been through these on the buyer's side.  But, it still takes patience.  If the buyer understands the process, they are more likely to hang in, especially if the price is right.

Brian.  You get the Gold Star for the day. 

That same agent will take a high listing commission and then offer 45% co-op.  More power to them, when they have the power, but there is no 50/50 rule anywhere, although I've heard that there are some area MLSs that may have something like it.  I don't know where.

 

11/19/2007 04:16 PM by Lenn Harley, Homefinders.com, MD & VA Real Estate

Laurie.  You said something very important.  "A TRUE short sale is just emerging" 

I thought about this today.  I was thinking that perhaps some of the banks could require a short seminar for listing agents who want to handle short sales.  Then at least the listing agents would have a handle on a particular agent's procedures and requirements of the seller.  That way, when there is a short sale situation, the seller would have to go to an approved . .   wait, that will never work.  The bank will want 35% of the broker fee. 

Where's my head?????

11/19/2007 04:22 PM by Lenn Harley, Homefinders.com, MD & VA Real Estate

Amanda.  I agree completely.  A smart broker could train a few good listing agents to handle these things.  But, they'd have to fight the Internet advertising jungle to get the business. 

I've got a few ideas.  My brain is churning.  Mmmmmm.  No thanks.  I suspect that I could bring in some business, but it would be nasty business and I don't think I want to burden my broker friends with it.

In fact, I spoke to one of my referral brokers a minute ago and he wouldn't want to touch them. 

11/19/2007 04:33 PM by Lenn Harley, Homefinders.com, MD & VA Real Estate

Lenn, I always love your HARD Core Real Estate posts!  This one about Short Sales is no exception. :)  Short sales to me are the equivalent of the Wild, Wild West of Real Estate..There are no guarantees and even when dealing with the same bank...different individuals sometimes seem to create their own rules.  We've done them...but they're never been easy.  It's even more daunting when you're working with an agent who does not understand what is involved.  Training is the key!  And...Patience.

11/19/2007 04:40 PM by Lola Audu~ Audu Real Estate~ Grand Rapids, MI Broker

Lenn - Excellent advice.  I've been very reluctant to even show short sales, especially to buyers who have very specific time frames.  Even if the agents were on their "A game" with regard to short sales, we still have to contend with over-taxed loss mitigators and asset managers struggling to get through their stack of hundreds of files a day!  Thank you for the great advice and information.  I know a lot of us are already nervous about these transactions so learning as much as we can through training (instead of bad experiences at the settlement table) is imperative!

11/19/2007 04:40 PM by Irene Morales Ward, Realtor, ABR, e-Pro Northern Virginia Real Estate (REMAX Absolute)

Lola.  Thanks for stopping by.  There really is no significant training in this area.  That's one of the problems.  Of course, the banks make their own rules and that doesn't help.  One of the problems is dealing with the banks and all the while the interest is accruing.  I suspect that we have another couple of years of this to come.

Irene.  You are right on target.  I don't believe that these listings will ever be a significant part of our market as they are in some areas. 

 

11/19/2007 04:57 PM by Lenn Harley, Homefinders.com, MD & VA Real Estate

At this juncture, having experienced (and failed to get to closing) a short sale, the biggest issue for us was the inconsistency of information from the "loss mitigation" department.  They SAID different things; disappeared with alarming consistency (on "vacation") and relied on an appraisal that is laughable (the appraiser wasn't from this end of Long Island).  There is NO SHORT SALE until it has a contract submitted, the bank appraisal  supports the value (potential for loss), and the bank has SIGNED OFF, in my opinion.  I'd love for other agents to understand this before specializing in them.  I'm with your friend, Lenn- NO MORE.  I'll wait for FHA foreclosures that demand quick action- not the agility to get PAID.  I'm still livid about that one (in a judicial foreclosure state that will take A YEAR to get to foreclosure).  The seller was selling oil out of the oil tank- now THAT'S ingenuity!

11/19/2007 05:01 PM by Options Realty

Laurie. I'm not too thrilled with HUD foreclosures either.  If the owner is accepted for forbearance, they can tie a property up for a year or two and all the while, interest is accruing on the note and the arrearage.  When the owners finally move out abandoning the property, the appliances are stripped, sometimes the AC and heating unit, not to mention wood flooring if any, the plumbing is not prepared for winter and the utilities are disconnected and you know what happened then. 

And HUD pays real estate folks 5% to sell these things.  That is the biggest scam of all.  Buyers buy them because HUD pays 5% closing.  Owners will have to live in them for 10 years to have any equity.  I've seen a few good HUD deals over the years, but far more bad deals for buyers.

I determined years ago that about the worse thing that can happen to a house is to grant forbearance to an owner.  All that is usually accomplished is digging the hole deeper.  I see a lot of that coming with the "work-out" programs pushed by the government.  All they usually do is delay the inevitable. 

11/19/2007 05:13 PM by Lenn Harley, Homefinders.com, MD & VA Real Estate

 Lenn,I'm totally outdated here.  I remember HUD foreclosures, 6% paid out for the SINGLE end, and hurryhurryhurry and get the offer in.  I was in my twenties.  Thanks for offering the only information that I find readable that is HARD CORE and CURRENT. 

11/19/2007 05:20 PM by Options Realty

LENN, You have wrote the book on short sales.  I have an agent in one of our offices that has specialized in Short Sales and preforeclosure sales before they have become popular.  She has done almost 30 Mil in and around Montgomery County.  I can guarantee you that any of the homes you listed above are not hers.  She will not tell you it is a short sell until you need to know.  It is not an invitation to under cut the asking price drastically.  If the appraisal comes back over asking, expect to be countered by the bank.

You have to be experienced in the whole process otherwise you will be cutting your commission and possibly working for free.  She gets paid every time.  She knows what the ratios that each bank will accept and the process through and through.  You have to have all the paperwork in line...so when the final decision maker has it, there is no reason for delay.  Key thing you must know the process and the paperwork

If you don't know how to work a short sale REFER IT OUT or get a negotiator to work between you, the seller and the bank.   

Great post as usual. 

11/19/2007 05:22 PM by Bob Carney Licensed MD/PA Real Estate Agent (Long & Foster Real Estate, Inc.)

Great info Lenn. I started out this year with intentions of getting into the short sale market as I saw a pretty good opportunity in my market to do so. Plus I knew I would be good at it and there are many folks that could use an experienced Broker to help them with this.  After dealing with numerous delays from my first two lenders and eventually losing both listings to foreclosure I decided my time was better spent else where. The lenders I dealt with, American Home Mortgage(now defunct) and Countrywide(soon to be) were just not prepared. Their Loss Mitigation departments were just pitiful. When dealing with AFM I had 6 different reps in a 5 month period!!!! Unbelievable.

Anyway, I quit listing them. I do however have one listed right now but only because the Seller has already done must of her homework with the lender and is really on the ball. So we'll see how this one goes.

I am finding that sellers in my market are now more inclined to just walk away from their properties. I guess they figure they aren't worth any where near what they owe(and they're right) so why go through the stress. Can't say I blame them. Stay in the house for the 6 months it will take to foreclose, save your money and move on with your life. It's could very well be a better option than losing your other assets on a losing proposition.

I may try again next year. I'm thinking hoping lenders will have a lot of practice with short sales by then and may be a little easier to deal with. Until then, I'll concentrating on the folks I know I can help.   

11/19/2007 05:31 PM by Bryant Tutas-Tutas Towne Realty, Inc

I guess this is some "Hard Core Real Estate"...wow Lenn! What a wealth of information you are. I don't have many short sale success stories and I cringe when I see one listed.

11/19/2007 05:41 PM by Monika McGillicuddy~REALTOR®~ N.H. Real Estate Broker & Trainer (Prudential Verani Realty/Hampstead)

Excuse me, Lenn?  BB, the seller of the short sale, nearly a year behind, understood that the bank was too stupid to look at REALITY.  If it's going to take the banks longer (and the loss mitigation departments to care- just a little) to reach the short sale acceptance...WHY BOTHER?  I want to know more about it, but am a NON-PARTICIPANT until it's realistic.  Lenn, you genius...I'm waiting the short sale thing out, because it's NOT REALITY in my market.  Thank you!  Delete if too much!

11/19/2007 05:58 PM by Options Realty

Been busy all day, just logged on, this is excellent. True words have not been spoken. The majority of agents don't understand them, and the ones that get them don't call you back and if they do, then the banks don't call them back. Thank you for an inciteful, well researched posts, incredibaly helpful.

11/19/2007 06:29 PM by Missy Caulk Ann Arbor Real Estate (Keller Williams Ann Arbor, Michigan)

Bob.  Great information.  I am impresses by anyone who would want to specialize in short sales.  I'm not sure about the ethics of not disclosing that it's a short sale.  But, I leave that to the experts. 

I get paid too.  I'm paid by the listing broker.

Bryant.  I believe your strategy is right.  The banks need to get their folks up to speed.  They are the ones who have the final decisions and delay simply increases the cost to everyone.

Monika.  In reality, in our MLS, short sale is just a couple of words thrown around.  All it means is the seller owes more than market value.

Laurie.  The more opinions and information this post generates, the more we learn.  It's good to understand this process even if we don't want to engage these sellers and I don't.  However, if one of my broker partners runs into one with potential, at least I'll be able to help them along.  Up to now, my advice to all of my network is "stay away".  But, 4 of our agents have gotten involved anyway. 

I'm not going to touch a listing when the listing broker is inclinded to leave the commission at the whim of the bank.  Most short sales around here are not planned.  In a short sale, I can't protect my fee in the contract.  If the listing agent has some demented idea that they can accept a reduced fee from the bank and then try to pull that 50/50 nonsense on me, they have another thought coming. 

This matter is going to shake out, but it's also going to get worse before it gets better.  We've got residential agents selling land.  We've got commerical agents selling residential.  We've got all kinds of folks out here trying to sell horse farms and they don't even know the county regs. 

I shutter to think of the nightmares that short sales can cause. 

 

11/19/2007 06:39 PM by Lenn Harley, Homefinders.com, MD & VA Real Estate

Wow Lenn - you weren't kidding when you wrote HARD CORE REAL ESTATE INFORMATION!!

There are many points about short sales that you hit right on the nail.  The one that annoys me the most is the listing agent not being upfront about the commission and negotiating for the buyer's agent.  The other one was an eye opener - the fact that agents are calling their listings "short sales" without really knowing what that means and knowing how to handle them is a bit scary. (that was some mean research there).

We have never had a short sale for a listing and I know I have to take a hardcore course...can I go to Lenn School? 

11/19/2007 06:57 PM by Rick & Ines - Miami Shores Real Estate (Majestic Properties)

We're all in Lenn school right now! Gotta love it!

11/19/2007 07:02 PM by AMANDA HALL*Broker*HALL TEAM HOMES* FORT WORTH REAL ESTATE (Serving all of DFW and surrounding areas within N Texas)

Lenn, just went through a short sale nightmare myself.  As listing agent I did everything right (I believe).  Sent in the entire package and talked extensively with the company.  We got many bogus offers of 1/2 of what the house was worth that were discarded.  When it came time for a legitamite offer to be submitted first they denied it and then decided that they wouldn't pay full commissions.  I argued this, but they pointed out that it was a listing agreement between me and the seller and if I wanted more commission I would have to go to him to get it.  I believe in representing the seller as best as possible so at this point I'm taking the hit because the other agent was promised BY ME the 3% coop.  After months of work and heartache it will probably close next week and our office will make $1350.

11/19/2007 07:15 PM by Chris Tesch College Station, Texas Real Estate (RE/MAX Bryan College Station)

Ines.  There are many ActiveRain members with far more knowledge and experience than I.  What I wanted to do was shoot down some of the myths so agents won't be taking on short sales as listing agents or selling agents without both eyes wide open.

Amanda.  Thanks.  Lenn has spend about 150 years in school.  Time to share.

11/19/2007 07:19 PM by Lenn Harley, Homefinders.com, MD & VA Real Estate

I'm not bothering with anything that makes me shudder.  Enough of that living with...LIFE.  Get it organized and do-able, and I'm there.  Until then- good luck.

11/19/2007 07:27 PM by Options Realty

I went through this in the 90s with the S&L meltdown and for a period of 4 years did mostly short sales and foreclosures.  I saw this coming a few years ago with absolutely outrageous speculation and bad lending and I knew we would be in this kind of market again, only this time it looks a lot larger than the previous downturn.  I started coaching agents and created a foreclosure consulting business in an effort to prepare the industry for this sudden downturn.  We help the agent close the short sale for a percentage of the commission.  This way the agent stays in the field doing what they do best and we are way better skilled and have the relationships to get a short sale approved, or disapproved quicker.  I tell the agents to expect 1.5  closings for every 4 short sale listings they take.  There is a short sale listing a week for a good agent in this market.  So the theory goes: 1 listing a week, 1.5 sales a month, 15 closings a year.  Sounds so simple? but very few agents can maintain the 1 listing a week part.  Partially because they are so trained to babysit every listing.  

 

Just rejoined active rain and I am really impressed with the quality of participation.  Mike Work  

11/19/2007 08:42 PM by Mike Work (U. S. Foreclosure Consulting)

Short sales are tough.  I'm not an expert, but have done a few.  I think it's a problem in general with real estate agents that they take on listings that are not within their current expertise.  Rookie agents should refer potential short sales to other agents. It's really not fair to all parties involved to have newbies handling those, unless they have great support.

I'm trying to negotiate one for a buyer and give it a 10% chance of closing.  It's a pretty large short ($70,000).  It will be interesting to see how things shift here in the next few months, as the ARM adjustments peak.  I agree that the TRUE large short sales are just starting to hit the market.

 

11/19/2007 08:58 PM by Melina Tomson, M.S. Salem Oregon Real Estate Specialist (Tomson Burnham, llc)

Great blog, Lenn.

Just closed a short sale today for a buyer client.  Needed bank approval as the seller/borrower could not pay off the second mortgage.  Took eight weeks for the seller to obtain approval, which was in the form of a letter accepting a reduced payoff on the second mortgage.  Unfortunately, by the time the seller obtained approval of the reduced payoff on the second, another $1,700 in interest and legal fees had accrued on the first mortgage.  Thankfully, as the first mortgage had gone into foreclosure, the bank holding the second saw the writing on the wall, and approved knocking another $1,700 off of their original payoff amount.  Once we actually had the name and phone number of the person to contact from the original short sale approval letter, we received approval for the further reduced payoff within forty-eight hours.  What a miracle! 

Training on these will be very difficult, as the facts change with every single deal.  If you are interested in purchasing a foreclosure/short sale property, I would highly recommend hiring an agent and a real estate attorney who have been around the block.  This is no place for novices. 

 

11/19/2007 09:56 PM by Buyer's Broker of Northern Michigan, LLC

3rd most over used word in real estate.

#1 fixer upper

#2 updated

11/19/2007 10:21 PM by Tom Burris | Texas Home Loan Expert (DallasLoanGuy.com)

Tom,

You are so right...it is crazy...I find the br