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All that appears short....is not a short sale......

As the ongoing financial crisis continues across the country, signs of foreclosure become more prominent. Agents from every section of the country are in large part chasing the curve. Rather than work for a solution, we are part of the problem. Signs like this do not mean short sale. Signs like this do not mean bank owner Signs like this only mean that someone paid a printer for the sign and slapped it in front of a home that is for sale.

There are loosely written rules regarding what is a short sale. Ask any group of real estate agents and you will get various answers that all will have a semblance of the truth. Actually, no one has truly defined a short sale from a legal perspective. None of us are following consistent rulesbecause none exist. The NAR is busy telling everyone that the purchase of a home is a great investment and they are overlooking signs like the one above and the impact that all these foreclosures have on the public.

The public is depending on us to guide them through the morass of bad newsand the NAR has their focus on some Pollyanna's version of life in the big city.

We need rules people. We need some sort of standards so that we are all operating on the same page. The liberal thought of a short sale is "the sale of a home for less than is owed on the property. The sale must be approved by those holding liens on the property." Sounds clear, but it is not clear enough.

Yes, the home is being offered for less than is owed. Yes, the lien holder must approve the sale. The devil is in the details. Lien holder approval for the attempt should be required before it is put on the market. No if's, no and's and no but's.

The haphazard method in which listings are allowed to appear in various MLS systems across the country is shameful. Homes are listed as needing third party approval when no paperwork has been filed. There are cases when people list their home as a short sale and they have not missed one payment. There are cases when the lender has said they will not accept a short sale and the home is listed anyway.

The MLS should only have homes for sale that are actually possible to purchase at a price that is the same as or lower than the price listed. (multiple offers may increase the amount received). There is little value in having an inaccurate MLS. Listing agents create the problem, but buyers agents face the wrath of frustrated buyers.

We need standards. We need valid disclosures. We need to add "the home is listed for less than is owed on the property and we have obtained permission from all lien holders to proceed in attempting to sell the house."

It is not rocket science. It is presenting the truth to the buying public. Agents that take listings with a wink and a nod hoping to get approval in the future are doing a dis-service to others. Their behavior and willingness to roll the dice with an unsuspecting client is dancing in the grey area, very close to the fire of unethical behavior.

States will have to address this soon. More properties are becoming at risk. More buyers are in the hunt. They deserve to hear the truth. A short sale is only a short sale if the lenders have agreed to the attempt. Period.

Posted by John MacArthur Branch Manager on 03/16/2008 02:43 PM

Comments (47)

short sale, approval, unethical, mls, nar dopes

This post has been included in Maryland Information Montgomery County, MD Information

47 Comments on All that appears short....is not a short sale......

MAR

2008

As some who has been working with a bank for almost a month now on getting paperwork and approvals in order BEFORE listing a short sale I can tell you it has been a nightmare. Finally today we went ahead and listed the house as the last words from the lender were..."just list it for sale and when you get a contract send it in with the short sale forms and we will take a look at it." We have done everything we can to avoid listing it with such open ended questions. I can't even begin to tell you had many hours have already gone into this process. What else can we do other than walk away from the client and let the house go into foreclosure? I'm sure we aren't the only agents with the same problem!

I agree in ideal world that we should have approval first. I can also tell you that with the big guys, they have just told me "bring me an offer and THEN we will consider it." My experience is that local lenders, are much more likely to agree to a short sale price first, prior to listing. Nationals...wait in line...

It's ugly out there. Rules...that would be nice.

You bring out some very good points. Thank you for taking the time.

Rich

Long Realty Co.

Oro Valley - Tucson AZ

http://rlecinski.longrealty.com

www.arizonagreatliving.com

Cindy - You are NOT ALONE. Part of the problem is that when we do follow the outlined steps required, it takes time and we end up with a vague answer.

WE CAN NOT BE A BANDAIDE ON THE PROBLEM. WE CAN NOT BE A TOURNEQUET ON A MORTALLY BLEEDING WOUND. WE CAN NOT CONTINUE TO ATTEMPT TO ASSIST IN CORRECTION OF A PROBLEM WITHOUT THE FULL COOPERATION OF THE LENDERS, OUR NATIONAL ASSOCIATION AND OUR VARIOUS MLS SYSTEMS!

The forecluse problem is only hidden by hopeful short sale listings. It is not the solution. Without bank approval, we are fooling ourselves and the buying public.

If we collectively stop listing "maybe" short sales, the lenders may take notice and realize their system is broken.

Melina - Those same big National firms could not wait to approve the questionable loans. They owe it to the american buying public and those in dire straits to adopt standards, create procedures and follow them.

thanks for the post i am about to start my first contract with a short sale, and i can only image whats to come

Rich - thanks for commenting. I know that I merely stopped to post what many feel. As mentioned by Melina.......it's ugly out there.

David - as the world turns today, you may be in for quite the adventure. if you are representing the buyer, patience will be key. it will also help if you stick to the facts as the process unfolds. do not trust instinct nor intuition. this is a very ugly, unpredictable transaction process. keep the mental image of the wild wild west meets the overworked frazzled unregulated carpet baggers.

Good comments but the banks also need to communicate with us better so we can help people through this process. I hope we all will learn something from the process we are all in it together and it will correct it'self soon. Thanks for the post.

Terry - It will only correct itself if we demand that the lenders create a consistent process, announce specific procedures and everyone agrees to abide by them.

John - pre-approved short sales would be such a great thing. It just doesn't yet seem possible. Maybe the lenders will come around, though.

So we can't get lenders to agree to a short sale prior to receiving an offer. That's the situation we're in now. But, let's worry about those listing agents who list a home as a short sale without any financial paperwork from the seller to submit to the lender with that offer. No financials. No tax returns. No pay stubs. No hardship letter. No authorization to speak to the lender on the sellers' behalf.

So, now they receive an offer from my buyer...and from other buyers...and we all sit and wait while the listing agent attempts to get the sellers' financial paperwork. The seller now won't cooperate. Two months after submitting our offer, we learn they are withdrawing the home from the market. Our buyers lose out as we wait to see if this home will now be available in the future as a foreclosure.

The lenders not pre-approving short sales in the first place is not the entire problem. Agents listing short sales without the proper paperwork in place are exacerbating the problem.

Whew...I feel better now!

this post is seemingly an exercise in futility. It is not at all how to do a short sale and is everything how NOT to do a short sale. In fact..what most real estate agents should do is not involve themselves in the transaction at all as they don't have the slightest idea as to how to execute a short sale.

Never more evident than by the statement made in the post.."Lien holder approval for the attempt should be required before it is put on the market. No if's, no and's and no but's."

Might want to make this a member's only post.

I don't really want to be the contrarian here. However, I propose that we learn our business, train our agents and we agents and brokers who know what we're doing will rise to the top in these matters.

Don - it is quite a dilema. we have been left in the lerch to make the best of a very bad situation. It is my hope that lenders realize we are not the enemy and that we are ready, willing and if properly educated about a uniform process, able to assist them in the smooth transition from pre-foreclosure to a new, able buyer of the property.

John-oh, don't get me started...first of all the banks need rules...I think if the banks had certain legal obligations...we would not have to worry about the mls.

Not sure the best way to address in our MLS's but I do think as a agent it should be fully disclosed to all parties so that there is an understanding that the process will in fact take longer than the average.

I have to agree with Lenn, people need to be educated more so with the process...it starts with training and then doing it and doing it honestly and fairly and correctly.

Brett - I am honored that you would actually stop and read my humble thoughts. I respectively disagree with the thought this should be members only. The opaque fashion in which transactions occur does not benefit the public at large. It leaves them wondering how such a problem could exist and if they are attempting to either sell or buy one the homes in question..how is it so painstakingly difficult.

Your generalization that agents should not be involved is consistent with the focus of your company and other comments and posts that you have made. I believe in the value of real estate agents and I accept that they are in the communities and continue to be looked to for answers to these questions.

The execution of a short sale is not a mystery. The veil over the situation is created because there are no rules nor are there any guidelines to follow. Across the country, agents attempt to assist sellers in the best way possible. As I mentioned, the lenders that were so eager to corral these homeowners should be just as eager to assist everyone in resolving the problem.

It is always a pleasure to have you stop by and comment.

Lenn - au contrare my fair lady. I agree with you in part. I happen to believe that the training would be more successful if there were actual standards to teach. Many of us know the path to achieving smoother transactions. Short sales are a rocky road, in part, because every lender seems to have their own rules and most of them are overwhelmed with the volumn of requests.

I just happen to think that it may behoove everyone to step back and only list homes that have proper approval and "packages" completed.

There are no easy answers to this problem. The seller legally owns the house and does not need permission to sell it. If it cannot be sold for what is owed on it, then of course buyers need to know this. Lien holders need to act quicker in these situations. Short sales are tough and not for the faint of heart. Think of how much worse it would be for the real estate industry and the public if agents what for a perfect system to sell these homes. There would be a huge glut of homes sitting vacant for months, further depressing values. We have not had a foreclosure crisis of this magnatude in a long time. I truly hope we all learn something from this mess and take steps to prevent it in the future.

Amen--The devil is in the details. How true!

John:

What bank is going to preapprove an short sale, REALLY, when the terms and conditions of each contract are so vastly different in ways that have nothing to do with PRICE. And any listing agent that says they have preapproval for one is simply stating that the bank is willing to entertain the idea of doing a short sale, rather than foreclosing. It's dollars and cents. It costs them money to foreclose. Short sales are cheaper.

I agree that we need a more stringent system with short sales. I became so frustrated that, as a member of my local association's education committee, I am developing a course for our fall conference this year that will help educate people how to list them and how to represent buyers who want them. What I'm finding is that there are a TON of misunderstandings about what is a viable short sale, what to do with it when you get it, and so on.

Well John...

All I have left to say is...

How about an MLS field that reads...

"Just testing the market" :)

As for the comment thread here...Be nice people. It's Sunday :)

Not to mention the fact that being nice comes with it's own reward :)

TLW...ROAR!

John

Just this last week I have been approached by three past clients that have homes that are worth less today than when they purchased them at 100 % financing 3-4 years ago. Also, in all three cases, internet lenders gave additional home equity loans to these folks with just a drive by appraisal when there was (is) no equity in the home. For three differnet reasons these people need to sell. In one case the home has been on the market for 2 months and has had no activity. They cannot keep up with the mortgage payments. Their mortgage lender will not approve a short sale until we have a Buyer and send the complete package including the Purchase and Sales Agreement to the bank. After we send in the offer and packet and they look at it, maybe, just maybe, if it is in the bank's best interest to do so, they will approve or negotiate a short sale. They do not want to even hear the words "Short Sale" without an offer and complete packet. We will not get a Buyer unless we lower the price considerably under what is presently owed on the property. So, sale will be contingent upon the Seller's mortgage lender .....

If we are representing these Sellers it is our duty to inform them of the lengthly process and that it has no guarantees and if they want to initate the process here are the steps they need to take prior to listing the property and/or receiving an offer from a Buyer and Buyer agent. Authorization letter, hardship letter, financials and bank statements, tax returns, pay stubs. Other requirements such as the net sheet and HUD statement can be completed when an offer is presented.

I agree it would be ideal (make our job easier) if the banks would give us a written indication that they would be willing to negotiate a short sale, but the banks are only looking out for the banks.

If we are representing the Buyer it is our duty to inform them of the lengthly process and that there are no guarantees that their offer will be accepted or negotiated if the offer is less than what is owed by the Seller to their mortgage lender. As a Buyer Agent all we can do is ask the Listing Agent if the Seller has put together the components of the package that will be required by the bank when an offer is submitted to Loss Mitigation as a "Short Sale".

I started to comment before I read all the comments. Im glad I tok the time to read them all. There are three in a row that together hit the nail on the head

Don Fabrizio-Garcia, Brett Wilson and Lenn Harley,

Like most any speciality area in our business agent should refer clients that they cant properly represent to someone that can. That goes for listing agents and for buyers agents.

John

Wishing that short sales were cleaner transactions with a neat set of rules to follow wont make it happen. Short sales are messy; each one is different from the next and the procedures are different from one bank to the next and those procedures can change from day to day. If you are going to play in this market you better be prepared to be flexable and be frustrated much of the time.

By the way and a little off topic I grew up in a neighborhood off New Hampshire Ave, inside the beltway, (before there was a beltway). Back then the only thing in Olney was the Olney dinner theater....Is it still there?

The tragedy of life is not that man loses, but that he almost wins -Heywood Broun

I am fighting a losing battle with a bank right now. I could write a book on why to stay away from "Short Sales" Actually maybe I should. I do not think that most agents realize how deeply they are putting their license in danger by listing these sales....way too many liabilities.

I am having T-shirts printed that say "just say NO to "Short Sales"...LOL!!!!

On the subject of short sales and foreclosures it seems like everyone is blaming everyone else. I have several clients who overleveraged their house, and now have to sell it. Two years ago, very few Realtors even knew what a short sale was and advised their clients that they would have to come to closing with the balance of what they owed.

Banks do not follow our rules, we have to follow theirs even if each one is different. They do not have to respond in a timely manner, or let agents know if there is more than one offer. We got our liscenses after being education on the rules of our industry. Banks ignore our rules. Our own agents are not skilled in performing according to professional standards. When an owner calls their lender to work out a settlement that lender won't even flash an eyelash unless they are several months in arrears. Most banks want a copy of the listing agreement and a HUD before they will consider allowing a short sale. How does an agent get approval if they first requrie a listing contract and HUD? A signed contract means that the property is on the market. There may not be mystery surrounding short sales, but there is no clarity on procedure. One local bank that I work with tells me to list it and call them when I have an offer.

Short sales do seem to be confusing to everyone. There does need to be some acceptable standard and explanation of everything that goes into a short sale and how the bank is a part of it. It should be disclosed up front. I called an agent today about a short sale property he had listed and he did actually have all of his ducks in a row. He knew exactly what the bank would accept and he told me up front. I appreciated his honesty and I did not have to waste my time trying to get to the bottom of it with my client.

I don't understand why someone would list a property when approval hasn't been obtained. We only get compensation when deals close. Why spend money advertising a property that may not be able to be sold? I have heard of this before unfortunately. I agree about NAR.

John - so true! Agents can't agree on what is a Short Sale, so we see everything in the MLS. Did they pick a list price out of the wind? Sometimes. When we met with a seller that we determined would need a short sale, we referred it out to an agent who is current on that - we shouldn't try to handle something for which we don't have the knowledge and expertise. I warn buyers that if they want to look at "short sales" it's like the old Wild West - no rules, no standards, lots of waiting with no assurances.

John-I agree. Negotiations with the Lender should be done in advance regarding price and Seller's pre-approval for a short sale. The Seller needs to prove to the Lender that they have no savings, no investments, no IRA's, "no assets"; just barely making it. Also, as you say, price needs to be discussed. I have seen some short sales coming out to the open market at 50% of the price they sold for. Those short sales are not going to fly. Lenders are sophisticated and they want to get as much as they can of their money. If price and Seller's approval have not been taken out of the way then all offers could be an exercise in futility.

Isaac Bensussen www.besthomesinlajolla.com

MAR

2008

Good Piece. It would be smart to iinitiate some policies now so in or around 2032 when our next real estate recession hits we'll have everything in place to remedy the imperfections with the process.

It's only a short sale if the bank has pre approved this status and agrees to look at offers. Conversely, one dollar under the current loan amount is "short", it doesn't have to be a significant loss to classify it as such.

I love seeking equity opportunities for my buyers but for the past two weeks have been dealing with a listing agent wholly unqualified to represent the property properly. My clients and I feel the listing's representation is actually forcing seller to lose his home by not communicating with us.

Win-Win counts!

Great post, we are at least one company that is trying to help create these standards. The CDPE Designation shows agents the correct way to list, maintain, negotiate and close these deals.

Alex Charfen
www.1cdpe.com

If folks understand how short sales work and have the patience and ability to counsel the buyers and sellers, if they meet short sale qualification, they are not a problem.

I've added two short sale listing brokers to my network in the past week. I've added 3 short sale agents to my network in the past week. I've dropped two agents from the network. One of these brokers closed 17 of my referrals last year. However, his bias towards short sales and foreclosures now disqualifies him because of the nature of the buyers contacting me for help.

The REALTOR COE clearly states that agents should limit their practice to their areas of expertise. If agents have no expertise with short sales, they should not be accepting buyer and seller listings for these properties. For listing agents it's easy, they simply don't get involved. For buyer's agents it's more difficult because we can't eliminate short sales or foreclosures from consideration for our buyer clients to purchase. While short sales and foreclosures are a small percentage of overall listings, they are concentrated in the lower and first time buyer range. These buyers are who are now coming back in to the market.

Brokers have to take the responsibility to train their agents in these matters.

Thank you for the great post which in a nutshell expresses what I have been feeling since I first heard of short sales. I haven't gotten onto the bandwagon to represent or seek out short sales. I personally do not have enough knowledge about how it works to feel comfortable representing either side of the deal. If I do have a buyer come along that decides on a short sale property then I would like basic guidelines in place. I'm an information person, give me the details and I will learn them. Otherwise I can't represent my client's best interest.

SInce I was the first comment on this I'd like to come back around again after reading all the comments. We've had quite a bit of education in our company regarding short sales and very few agents show up. Yet many of them have short sale listings.

We have our seller ready to go with the hardship package from the lender completed. We have names of who we have talked to at the lender who have advised us on how to proceed. We are far more ready to go than some short sales I have attempted to offer on. How fast will the bank respond is the true unknown. How fast will they order the BPO or apprisial is unknown. You would think they would rather answer our contract than let a home go to foreclosure but maybe they like owning a depreciating assest. Who knows.

This is a complicated situation that takes the agents, the lenders and the seller to work together to get to the settlement table.

Great points. I've dealt with some sellers who want to short their home because it's upside down, but they haven't missed a payment and are in good financial standing.

If there were some National Guideline across the board that had to be adhered to, that would be great. Unfortunately, every lending institution is different. They are the ones that really need the guidelines/regulations which in turn make the transactions run a lot smoother and hopefully quicker for all parties involved.

You can't read this and continue to have the questions many are having about short sales.

I do understand the frustration written here concerning short sales. I had one recently (Nov,07) that went rather smoothly. It's all in how the bank will handle it. It's pretty much out of the seller's hands.

John....great post. You bring out some very valid points. We have agents in our area listing short sales 200K below market. It is really teeing people off. rules and guidelines would be great.

Due to the confusion in this arena there are many agents who refuse to do short sales. I do them but am at a loss to find good plausible advice other than stressing to the sellers and potential buyers that they are in for a waiting game, and wall of silence. These matters are best handled by the extremely persistent and patient.

I agree. Some sort of standard procedures and training would be helpful. I think the main problem is that a lot of people don't understand short sales.

There are two problems here.

Problem 1 - Agents who do not know what they are doing are taking on short sales when they shouldn't. One of the problems is the lack of training in these areas. In some cases this is due to an UNWILLINGNESS on the part of experienced brokers to pass along their knowledge to anyone new because why should they train someone to compete with them. Those who venture into this area may indeed have to be self-taught or take what little they learned in a USELESS class and attempt to apply it. That's scary, but experienced agents in this area should not be attempting to hog it all for themselves.

Problem 2 - The banks are no longer the bank down the street that would deal directly with agents and work out something that makes sense. Even experienced agents and brokers are getting a brick wall of silence. This is often becuase it is very hard to find someone who has the actual authority to MAKE A DECISION that involves a LOSS. At least that is what I am getting from people who do short sales now - and have a history of doing them in the past. In other words, there has been a quantum shift in how the banks are functioning - and it is totally dysfunctional! This makes an orderly short sale impossible - and that brings us right back to where you started, J Mac...you wanted some rules and regulations, but if no one will answer the phone, that's not going to be possible.

Now, I know I'm not saying anything unique here. I'm just saying that there are two issues being batted around and that both are factors that need to be addressed.

I have done about 4 short sales in the last 6-7 months in Howard, Anne Arundel, & Carroll County, and have 3 more listed (one of those under contract). I learned the basics from a short sale coach who is also a practicing Realtor in Oregon - so she had no problem teaching me since we are in different markets -- on opposite sides of the country! The rest of it I have learned as I go - with advice from my coach as I moved along. With a few of these deals under my belt (only one has gone to foreclosure), I would say I have a very good grasp on what it takes to get a short sale done.

For the most part, the banks all need the same information as part of the "short sale package" (hardship letter, borrowers financial statements, last 2 paystubs, last 2 yrs of tax returns, last 2 months of bank statements, etc, and MOST important, an offer from a pre-approved buyer). All the banks I have dealt with want the entire package all together. None of the banks I have dealt with will even let me speak with a negotiator until I have submitted the FULL short sale package. So, basically, I cannot speak with a negotiator on how much they will accept, until we have an offer. Believe me, I have tried to get to a negotiator without an offer, but to no avail. I am starting to build a database of different negotiators with each bank - maybe that will help get to a decision maker quicker in the future - who knows.

Of course, to get an offer, we need to list the property. We list a lttle under market value, but not so low where the bank will not accept the offer. (I have heard strategies of listing at 50-60% of market value and generating a bidding war. I dont know if that strategy works first hand, but our strategy seems to be working, so we will continue with that.) In my experience, banks will accept a little less than market value - 5 to 10% - more if the property is in bad condition.

One of the biggest challenge in getting the deal done is keeping the buyer to hang on while the short sale package goes through the loooooonnngg process of getting through the banks system where they can actaully make a decision. Some banks are more efficient than others. I have had the short sale package get to a negotiator as quickly as 48 hours, or sometimes as long as 30 days. Then once it gets to a negotiator, it could be 30-90 days before a decision is made - again depending on the bank. I have noticed the larger banks take longer - I think because they have so many short sales they need to process and a limited number of negotiators to handle them. One deal I recently closed on was passed along to several different negotiators within the bank - not because it was going up some chain of command, but because the previous negotiator was so overwhelmed, they could no longer handle their work load. That buyer ended up walking, but we got another buyer pretty quickly and since the first offer was already working its way through the banks process, we did not have to resubmit everything - I was able to replace the new offer with the first offer - and the deal settled within 1 month of receiving the new offer.

Now I stress to any buyers who want to write offers on a short sale listing (whether it's mine or another agents), that they will need to be patient. If they can be patient, sometimes waiting up to 4 months to get to settlement, they can get a good deal on a home. If a buyer MUST settle in 30-60 days, putting in an offer on a short sale is probably not a good idea.

With short sales (as is the case in traditional real estate sales) each deal presents a new set of challenges and opportunities to learn.

MAR

2008

I was already think about my comment until I read your last line...That's it, simply. I think the best way is to advertise a 'possible short-sale', with all of the lender requirements. It's tough, though because at some point in time the negotiation process gets muddied by this admission. What does a buyer have to lose with a lowball? And who knows what possible repercussions are in store for the seller if the lender decides to pursue their loss? How do you explain away the 7-10 day response time on the offer? You just have to be honest...

MAR

2008

Good answer above from Matt Fein.

Isaac Bensussen www.besthomesinlajolla.com

FEB

Everyone needs to check out www.CDPENOW.com . The best course I have ever taken! If you are interested in successfully working short sales, and you should be b/c they are "the market of the now", then you need to earn this designation immediately. Happy Selling!

Clayton Gits

Keller Williams Realty

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