Why does it take 3.8 contracts to sell a short sale property?  Why do Realtors insist on spinning their wheels and getting nowhere selling short sale properties?

My office handles a lot of short sale transactions and we work with Realtors on the short sale negotiation side of the transaction as well as legally advise the buyer or seller in the transaction. I have long been a proponent of fixing the system because we as taxpayers are going to pay the bill for the inability or unwillingness of lenders to create the fix themselves. See BANKS CREATE BILLIONS (MORE) IN LOSSES.

Back in December I had a very interesting discussion with a senior loan mitigation officer for a national lender about multiple contracts before one became "real".  I told him our experience was an unscientific 4 contracts before a buyer stayed with a deal.  The loan officer said their internal study was 3.8 contracts.  Close enough. 

The problem is that we see all sorts of reasons why the buyer walks away from a short sale contract.  Most of the reasons relate to the buyer having no risk in the transaction.  Here is an unofficial list of RED FLAGS:

1.  There is no deposit.  Sometimes the deposit is to be made upon bank approval of the contract. 

2.  The deposit is $1000 or less and the contract states that all contingencies, including financing and inspections, don't begin until the bank approval of the contract.

3.  The effective date of the contract is not until the bank approval of the contract.

4.  There is a pre-approval of the financing for the buyer but not a commitment.

The problem of a buyer having no risk is that buyers can make offers on multiple properties, knowing in advance that they are only going to buy one or two and also having no risk to their deposit (if there is one) since they can legally back out during the contingency period.  Additionally, the seller - already cash strapped - is probably not going to hire an attorney for the retrieval of the $1000 deposit even if it were at risk.  All the "get rich in short sale" seminars promote this scheme.

Of course the banks are also to blame for the high contract number.  They take way too long to process short sale files and their procedures are totally inconsistent both internally and from bank to bank (or investor to investor).  But there are too many contract offers to process timely because of the way the contracts are written.

The loan officer said that to stop this waste of time, his bank wanted to receive offers that were contingent only on the bank's approval of the contract with closing within two weeks from that approval.  The program they were testing was designed to process a short sale contract that met these parameters in only 21 days.  This would mean the entire time from contract offer to contract closing would be 5 weeks.

Frankly, I find this to be a magnificent idea.  But I could only hope that a lender that got a contract contingent only on the lender's approval would actually process that contract in 21 days.

Here is what the ideal contract would look like:

1.  Contract price within parameters to current market value.

2.  Financing commitment in place with lock for 45 days.

3.  Inspections completed and accepted.

Any Realtor with a serious buyer - or any Realtor fed up with phony contracts - should push their buyer to submit a contract under these parameters.  The result may change the way short sales are sold forevermore. And the results may give you more time for golf or skiing or time with the children instead of needlessly spinning your wheels.  But the real impetus to getting this done must he the banks that have to approve the short sale.  Only a concerted and cooperative effort by the banks holding these mortgages will allow a global change in the way short sale offers are received and accepted.

Copyright 2009 Richard P. Zaretsky, Esq.

Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make.  This article is for information purposes and is not specific advice to any one reader. 

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660  RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide!  Shortsales@Florida-Counsel.com  New Website www.Florida-Counsel.com.  See our easy to find articles at Need Short Sale Information? - These Articles Probably Answer Your Question