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Are Short Sales Like Snake Oil? You Decide! (Part II)

By Steve Homer

Real Estate Agent with The HBH Group (Keller Williams affiliate)

July 24, 2008 01:40 AM

short sale vs foreclosure,are short sales better than foreclosure,should i sell short,should i let my lender foreclose,foreclosure results On April 30th of this year I posted part I of this diatribe in an attempt to "educate" the REALTOR(R) and consumer community of some of the issues with short sales. That post was IMMEDIATELY boo'ed by many in the AR community (which I expected - especially from those making a living on short sales during this time of high foreclosures!). I expected to take a few arrows, but wanted to make sure that the community at large at least knew the dangers.

What made me decide to take this direction, was that I had worked with several buyers in a row which can't qualify now or perhaps for many years to come following a short sale. I know that there are many agents out there that are saying the opposite, but lets think about the long term ramifications to the REALTOR(R) and the client:

If your REALTOR(R) neglects to insure for their short sale client that the bank has waived ALL rights to a deficiency judgement against the client, when the foreclosure dust settles in a while what might you think the bank's lawyers will pursue with extra time on their hands? Are the agents seeking legal advice for the short sale clients to insure that the bank can take no deficiency recourse based on the paperwork the seller is signing. How many agents do you think may be called back into court or named on a suit when this starts to happen? This is something to keep in mind in my opinion!
Although the tax implications were rolled back by the Bush Administration last year (December forgiveness bill rolls back taxes on short sale gains by the IRS for a period of 3 years), in the future this will again be a consideration.
The issue with credit scores has been verified again by the Fair Isaac Corporation. CLICK HERE to read an article from the Washington Post on Sunday that states that in effect, FICO scores ARE effected evenly in short sale AND foreclosure situations. Couple that fact with the complete disappearing act of sub-prime lending and you need to understand that in either case, a seller today who short sells OR suffers foreclosure will be in tough straights when trying to purchase their next home using the mortgage markets. I suspect that there will be pockets of private investors willing to make high interest rate loans, but the traditional, government-backed loans are going to be hard to come by.

short sale vs foreclosure,are short sales better than foreclosure,should i sell short,should i let my lender foreclose,foreclosure results Hope this post is educational. I am a "black hat" thinker and prefer to see the world in a worst that can happen mode, since if the worst happens here and you were the REALTOR(R) that convinced many people to short sell because they could buy another home faster, you may be bringing litigation to yourself or possibly lose your license! Be careful!

This information is brought to you as a public service of the The HBH Group Realty Team with Keller Williams Realty. You can learn more about us at our websites located at: http://www.TheHBHGroup.com/ and http://www.TheHBHGroup.biz/ or contact our offices at (512) 439-3772 or toll-free at (877) 268-1877.

We teach a monthly real estate investment seminar in the Greater Austin area and YOU ARE INVITED to this FREE event. Simply call our offices to reserve you seats! Also ask about the investors club that we are forming in the North Austin markets currently - We would love to have you participate!

CLICK HERE to view our current Virtual Tours of properties on one of the team's web sites.

Here are some other Buyer's Resources from Our Website: Seven steps to buying your home
Deciding how much house you can afford Making your home wish list Opting for new home construction
How can a real estate agent help me? 10 things you should ask a real estate agent
Location, Location, Location Mortgage Calculator Contact us about buying your home

And some seller's resources as well:Eight steps to selling your home
How can a real estate agent help me sell my home Practicing good seller's etiquette
How to price to sell and still make a profit Understanding the buyer Increasing your home's appeal
Mortgage Calculator Contact us about selling a property

The HBH Group/HBH Property Management
101 E. Old Settlers Blvd., Suite 190
Roundrock, TX 78664

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Dana Couch-Davis

Kendall Haney Realty Group - Memphis, TN

CRS, GRI, ABR, SRES

Those are some very sound considerations Steve. One thing that is driving me crazy is that many "new" agents are going out and getting short sales and messing it up for their clients. Experience and education are the key to risk management.

Jul 24, 2008 01:50 AM

Highland Beach Condos David Serle

RE/MAX Services - Highland Beach, FL

Boca Raton Agent David Serle

Steve,

I agree with you in the fact that we have to be more knowledgeable about short sales. I do however believe you can make a lot of money with short sales. I disagree with you on the negative impact on credit. We have found that short sales along with the missing of payments reduce the credit score around 150 points. Foreclosures around 250 points. ALso with foreclosures down the line when they revamp the system instead of having just guidelines with desk top underwriting to get a loan they will be seriously looking at your ability to repay the loan. If they see a short sale they at least know that you worked with the bank. If you receive a foreclosure it is going to be even more difficult to get a loan than bankruptcy.

As far as the deficiency judgement, most people do not know about this, but it is serious. We have a short sale attorney in our office that handles all our short sales. She negotiates on the behalf of the client. Thanks for the post.

Jul 24, 2008 01:55 AM

Steve Homer

The HBH Group (Keller Williams affiliate) - Round Rock, TX

Dana: Thanks for your comments. I think that too often we as real estate agents get our eyes on commissions and off the fact that agency calls for a fiduciary responsibility that we MUST take seriously. To NOT understand all the ramifications of a suggested course of action is very irresponsible and I fear that there will be accountability ahead for those who take short sales lightly! I am only trying to wave the red lantern.

Jul 24, 2008 08:45 AM

David: I am not the one saying that short sales are the same as a foreclosure on Fair Isaac scores... Fair Isaac Corporation IS... I quote the article noted above from the Washington Post here:

"A foreclosure and short sale inflict equal damage to your FICO score, according to Fair Isaac, the company that compiles those all-powerful numbers. Either will make you ineligible for three years for a mortgage insured by the Federal Housing Administration. (Extenuating circumstances, such as serious illness or death of a wage earner can justify exceptions, according to the FHA.)"

I have for the most part seen what you have seen, which puzzles me a little bit, but I think would should not be making comments to a short sale seller that their credit score will come out better after a short sale, at least based on Fair Isaac is saying.... However, do whatever your conscious leads you do...

Jul 24, 2008 08:53 AM

Hello Steve,

I did see the article. However, I can just go on what I see first hand. Until they change the scoring to reflect what Fair Isaac is saying I will be using my first hand knowledge. I do not believe in misleading the public or especially my customer. I do believe in giving them the facts, and let them make their own decisions. My conscious does not lead me facts and knowledge does. ANyway thanks for the post.

Jul 24, 2008 09:16 AM

Are Short Sales Like Snake Oil? You Decide! (Part II)

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Steve Homer

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