A mortgage with a $211,657 balance on a home that's worth considerably less.  A contract comes in at $100k, another at $120k, and another at $170k.  Which of the three contracts should the seller accept?

The logical answer is for the seller to accept the $170k contract, right? 

Let me tell you why I feel that's probably the wrong contract to accept to get the property sold.

The seller accepts the $170k contract and the listing agent puts the short sale package together to submit to the shorting lender.  The lender orders a BPO and, by the time the lender counters, the $170k buyer is gone.  Now what?

The shorting lender is looking for a $170k buyer.  Why shouldn't they?  You've already shown them that there was one buyer who (for a moment and before he came to his senses) was willing to offer $170k.  He's since changed his mind and made offers on other properties or closed on another one similar for $155k.

This is a subtle problem with short sales that doesn't get talked about much.  Lenders are debt collectors.  They don't care about customer service.  They don't care about anything but generating the highest net present value on the disposition of this property.  The lender wants you to bring another buyer at that high price and you can't.  Plain and simple.  The property is headed to foreclosure.

Had the seller accepted the contract from an honest, ethical investor at $100k who was willing to play the games that the shorting lender likes to play, then the short sale could have been pre-approved at a lower amount and prepared for any buyer that wanted to offer the lower amount.

The result would be that the $211,657 mortgage debt could be negotiated down to $103,625 and sold to a buyer with FHA financing at $116,500.  This one closed yesterday. 

This is what I do.  I buy, process, and close short sales with a team of a few dozen employees and contractors in Clearwater, Florida.  I also provide FHA financing to buyers of short sales.  I have seven different exit strategies and among my favorite is to purchase the property for cash, although we have a fail safe of terminating our contract and substituting another buyer that purchases directly from the seller.  You make the real estate commissions. 

If anyone reading this has any single family homes for short sale and there is a documentable hardship story that can be presented to the lender in order to obtain a full release of liability, then contact me and we'll see how we can work together.  But whether we work together or not, please make sure you are giving your sellers a fighting chance to sell their short sale by avoiding the subtle and not widely discussed pitfall that I have described above. 

Paul 702-988-2560

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