5 Things Agents Need to Think About with Short Sales

By
Real Estate Agent with Nest Realty

I know I am in the minority here when I say agents should not be negotiating short sales.  (which I have written about ad nauseam) I am fully aware that in some markets, 90% of the housing inventory is a short sale or REO.  Every time I turn around, I see some other "agent expert" hawking their short sale how-to book or "qualifying" designation.  Unfortunately, short sales are part of the real estate business in 2009; however, we are in unchartered waters as agents and I hope that in 10 years, the real estate industry doesn't look back on this and say, "what were we thinking?".

1.  Does your E&O insurance specifically state that you are covered to engage in a short sale?  I asked my insurance company this and the answer was, "yes"; however, the policy doesn't specifically state "short sale" nor any of the acts normally associated with handling a short sale.  The policy does state that I will not be covered for acts as an agent, "not expressly described herein".

2.  If the sellers currently have a government mortgage and they sell it short, will they be able to get another government loan (including a government backed student loan) unless they pay the difference?  From what I have read with regards to VA loans, the answer is "no".

3.  With some banks, if the property has fallen in value to a point where it is not worth more than a certain amount (say $25,000), they will not foreclose.  Of course, they do not advertise this; however, they will just release the lien on the property.  

4.  We are not just dealing with sales prices here.  We are dealing with the futures of these sellers.  Let's say seller A sells short, is required to liquidate his savings and starts having his wages garnished for the difference 2 months later.  Seller B, same mortgage company, same shortage, doesn't have to liquidate anything and the bank agrees to no deficiency judgment.  Is seller A's agent at fault for not negotiating better with the bank?

5.  How does your licensing board address agents handling short sales?  The licensing board in Virginia doesn't specifically address short sales; however, it is VERY specific about agents performing duties that should only be handled by an attorney.  Is negotiating a short sale with a bank (who is not a party to a standard sales contract), a "ministerial" act for an agent, or something with legal ramifications that should be handled by an attorney?

My husband works for a large bank.  Everyday, they get calls from former sellers complaining that their wages are being garnished, the bank placed a lien on their other property, they lost their job because of their credit (yes that really happened) etc., and that "my agent never told me this would happen", or, "my agent told me the bank could do this, but the bank's so swamped, probably won't".

Sorry, unless a real estate agent has a crystal ball and knows the long term ramifications of a seller doing a short sale, I don't think they should be calling themselves a "short sale expert".  Even the most "experienced" agents working short sales have only been dealing with them for what, 3-4 years tops?  That's not the making of an "expert" in my opinion.

Tina in Virginia

 

 

Posted by

**************************************************************************************

realtor technology spotlight awardTina Merritt and her Associates. can be reached at email:  tina@nestrealtygroup.com or 757-287-6338.

Our Network consists of both buyer and listing specialists helping buyers and sellers in Southeast Virginia, Hampton Roads, Virginia Beach, Chesapeake, Norfolk, Portsmouth, Suffolk, Isle of Wight County, Hampton, Newport News and Poquoson, Virginia.  In Southwest Virginia, the New River Valley, Blacksburg, Christiansburg, Radford, Pulaski, Dublin, Floyd, Narrows, Pembroke, Pearisburg, Glen Lyn, Rich Creek, Check, Hiwassee, Indian Valley, Parrott, Newport, Shawsville, Pilot, McCoy, Long Shop, Fairlawn, Wythe, Draper, Willis, Sowers, Elliston, Eggleston, Ironto, Riner, Auburn, Rogers, Giles County, Montgomery County, Floyd County, Pulaski County.

Visit our website:  NestRealtyGroup.com

 

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Re-Blogged 1 time:

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  1. William Blackburn 07/08/2009 02:24 AM
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Rainmaker
292,404
Home Loan Search.Online
Home Loan Search Online - Newnan, GA

Interesting information and point of view. I have worked with several realtors that are doing a lot of short sales but they aren't calling themselves experts.

Jul 08, 2009 12:08 AM #67
Rainer
34,888
Kevin Hicks
Future Home Realty - Jacksonville, FL
Unique Realtor & Attorney Team

Good post. I agree 100% with you that agents need to refer to professionals when handling short sales. My wife is an Attorney and we have both been involved with short sales long before they became so mainstream. We have seen so many agents jump on board and suddenly become "experts" in our area as well. I have always suggested agents refer short sales out to real professionals who have a proven track record. However, I would never advise anyone to stay away from short sales. This is a valuable service that many people need right now where the only other option is a foreclosure. The reasons a short sale is better than a foreclosure is another topic so I want go into that.

Jul 08, 2009 01:36 AM #68
Rainer
9,339
Tim Burrell
Author "Create A Great Deal" & "Create A Short Sale" - Raleigh, NC
Negotiating & Short Sale Professor

Your comments are correct for many agents who do not have a full understanding of the wide range of training and information that a Realtor needs to properly represent a seller in a short sale.  You believe that there are only agents who have been doing them recently, i.e. not experienced enough to teach others and properly represent sellers.

I did my first short sale in California in 1992.  I have been doing them ever since, as there are people who manage to get into trouble in any market. I even did one in 2005.  By the way, I am also licensed as an Attorney.  So, there are some agents out there with a skill set that is different from your image of short sale agents.  

Because of my experience, I teach others how to do them properly, which takes a lot of teaching.  My class is approved by the North Carolina Real Estate Commission for continuing education credit after extensive review.  My book, Create A Short Sale, Your Guide to the Short Sale Maze covers the issues where you indicate that training is lacking in most agents.  I believe you are trying to encourage agents to get complete training before representing sellers in short sales, as you point out problems if agents do not know the full range of responsibilities.  An encyclopedia of Short Sale information is available to help agents at www.CreateAShortSale.com . 

Your are right there are many things an agent needs to do.  One of the most important is to try to get complete relief from the debt.  However, the agent needs to explain when the listing is taken that there is no guarantee of complete relief from the debt and that the lender may try to pursue the seller.  The review of the bank's approval letter of the short sale is extremely important, as it will give the seller the confirmation that the debt has been fully staisfied, or that the seller will still be pursued for the debt.  Negotiating the terms of that letter before the seller signs it is a critical part of short sale representation.

Making agents aware of the education and training necessary to properly represent a short sale is important, so thank you for that.

Jul 08, 2009 01:47 AM #69
Anonymous
Margaret Kees

The world of short sales is certainly uncharted even for agents with experience.  Every lender is different, every property and circumstance is different. Your experience helps you persevere.  I'm currently working with a mega lender who is merging with another mega lender and a couple of days ago I decided that we may just all be going to 'heck' without even getting a hand basket.   

My question is not only will we be asking what were we thinking in 10 years (or less), but what were we thinking about giving all this bail out money and still have no real consistency with the process?

Jul 08, 2009 02:11 AM #70
Anonymous
WIN Home Inspection

Thanks for all the information. We are not Realtor, but go through some of the same things on are end. But we are not hit with the legal end of it.

Jul 08, 2009 02:25 AM #71
Rainmaker
59,168
Steve Facella
ReMax Prestige - Lake Worth, FL

Short Sales are a real pain! That said, it would be great if we had a bit more guidance from our licensing boards as to what we should do or not with respect to these transactions. I remain "In for a penny, in for a pound". I have several short sale listings that I am negotiating. It will be nice when these go away.....

Jul 08, 2009 02:26 AM #72
Rainer
6,503
Matt Peters
RE/MAX Premiere - Albuquerque, NM
(New Mexico Broker)

There is a whole other perspective from which to bash short sales.  They are generally not a beneficial thing for the Seller, often a frustrating waste of time for the buyer and gum up the marketplace.  They may be a benefit to the lender, could relieve the courts of some backlog, and may provide some profit to the real estate agents.

But, they don't do the seller much good. To complete a short sale, the borrower (seller) must show a lack of resources and be a few months behind in payments. Once 90 days late on a mortgage their credit is hit the same as having a foreclosure. So the Short sale does not save their credit.

If the short sale is approved, the borrower is likely to have a deficiency judgment or a tax liability for the "forgiven" debt. The borrower will probably exit the transaction drained of resources and exhausted from the ordeal. Just delaying the foreclosure with simple legal maneuvers, staying in the house longer and not cashing in all liquid assets has the borrower leaving in better condition.

The buyer has be in very special circumstances for the short sale to make any sense. The indefinite status of the transaction and undetermined waiting just don't work for most buyers. That is, if you define a buyer as someone who wants to actually buy a property.

The market suffers, also, from short sales.  Properties are listed at prices which they may not be able to be purchased.  Properties are listed as "Active" when there are 2 offers under review by the bank, and 7 backup offers in the agents file folder.  MLS gives an impression of more properties available that are actually available, and at prices lower than they might be purchased, and on the market longer than they would be if only the offer(s) in hand could be approved.

So. Who benefits from short sales?  Do we as REALTORS really provide any beneficial service to our sellers with short sales? Why do we do them except to generate income? Could listing a short sale actually be in violation of the REALTOR Code of Ethics?

Matt Peters, Albuquerque-Rio Rancho, New Mexico                      Matt@REALTOR.com     
(505) 269-4791 . . . .  Your Direct Line to RESULTS
www.IdealNM.com           www.Relocation2Albuquerque.com

Jul 08, 2009 02:37 AM #73
Rainer
9,316
Mori Langshaw
DMV Realty Group LLC - Fort Washington, MD

I am actually appalled by some of these comments here.  I am almost at a loss for words.   First thing that appalls me is the lack of respect for the real estate agent.  Throughout this post, I have read the theme of "you should refer short sales to a real professional" (IE an attorney).  Could someone explain to me when a licensed real estate person was NOT a "real professional"? Please show our profession a little more respect.

Next, sounds like agents are confused as to what their role is in a short sale.  You do the SAME thing as in a "regular" transaction.  You DO NOT "negotiate!  Just because you speak to someone at a bank and their title may be Negotiator, you are doing the SAME thing as you would with a traditional seller.  As an "agent" you merely represent someone.  If the bank "counters" an offer that you have submitted (usually from another agent who represents their own client), you take that counter back to your seller and the buyers agent and merely present the counter.  Where are you negotiating? 

I do not know one agent in this country where their job is to "negotiate".  "AGENTS", of ANY kind, whether it be a real estate agent, insurance agent, sports agent, is strictly of representation.  Your job is to be able to read and understand.  Present to your client what the contract/offer states and the CLIENT will make a decision.

No licensed "agent" (of any kind) has the legal responsibility to negotiate whereas Attorneys licenses state clearly that they CAN negotiate. 

Please take the time to understand what your job really is in a short sale.  The seller is not giving you authority to "negotiate" on their behalf and you shouldnt put it out there that you are negotiating.  YOU'RE NOT!  Attorneys that do short sales are not even negotiating. 

The main thing that you have to do within a short sale is to disclose disclose disclose.  And your local board should have good disclosures.  If they don't, just have a "real professional" draw them up for you.

Jul 08, 2009 02:39 AM #74
Rainer
118,327
Ginger Moore
Wilkinson & Associates Realty - Gastonia, NC

Great blog.  I want to learn all I can about these short sales. I know every one is a little different.  I love all this info. thx again!

Jul 08, 2009 02:42 AM #75
Rainer
9,316
Mori Langshaw
DMV Realty Group LLC - Fort Washington, MD

Matt,

Unfortunately, MOST of your post is purely incorrect.  Where do I start?

1. Mortgage Lates - you don't have to be "late" on your mortgage to do a short sale.  Thats an illusion that many believe.  You MUST show a hardship.

2. A 90 day late mortgage on your credit IS NOT the same as a foreclosure.  I actually giggled at that.  We have tracked sooooo many short sales and the credit impact, that your statement is so far from correct but I don't want to call it a lie but its incorrect.....Sir.

3. The tax liability - MOST of the short sales being done today are probably from loans between 2006 and the present.  If you know the law Bush signed into effect, then the tax liability is forgiven on owner occupied residences.

4.  Not sure why the BUYER has to be in "special circumstances"!

5.  I DO agree with your assessment of the MLS and what it truly represents in the local marketplace.

Jul 08, 2009 02:46 AM #76
Rainer
194,151
Jeff Payne
The Payne Group at Keller Williams Success Realty - Panama City, FL
Panama City Real Estate

Mori, I agree  with you, Matt's post has alot of holes in it.   You are correct, we have done many short sales in which the seller was not late. 

I also agree with another post that we are NOT negotiating, we facilitate the transaction, we can NOT and do NOT negotiate anything.  Real Estate Agents are not party to the contract.   Submitting a short sale package to the lender is not negotiating by any means.

We are OK with agents who do not like short sales, DON'T GET INVOLVED if you do not understand or like short sales.  You can choose who you work with and what you work on.

Jul 08, 2009 02:57 AM #77
Rainmaker
571,868
Bill Gillhespy
16 Sunview Blvd - Fort Myers Beach, FL
Fort Myers Beach Realtor, Fort Myers Beach Agent - Homes & Condos

Morning Tina,  The short sale segment is indeed less charted than traditional sales.  Having the insight to refer out to someone more experienced is vital.

Jul 08, 2009 03:04 AM #78
Rainmaker
195,327
Antonio & Alexia Cardenas
Alameda County - San Leandro, CA. - San Leandro, CA
"The Realtors In Motion"

Tina, I am glad that you brought up this subject, it is clear to me that we cannot shy away from short sales but we cannot ignore them either. Here in sunny California we have somewhere in the vicinity of about 65% of the inventory being distress properties, we have to learn how to deal with them otherwise we might not be in business any more!

If we are afraid of being sued, why are we in real estate? this profession of ours is ridiculously open to lawsuits for every step we take! "The Realtor did not show me this, the Realtor did not tell me this, the Realtor did not informed of this etc. etc. we get sued because we call softwood... hardwood!

The way I look at it, we must disclose to the seller the fact that the seller needs legal advise in writing and then proceed with the transaction and deal with the 2 sellers: the bank and the owner of the property. Most people do not have the money to hire an attorney, their Realtor is their only choice. I have done a couple of short sales in the last two years, still don't like them but I must learn how to maneuver through the mess as any other seller, attorney, Realtor, loan consultant etc. etc.

It is our job to help them with the house, we should not be afraid. Just by reading posts like yours Tina, I have learned a few things here and there. These types of sales will stay with us for a long time. My suggestion: Learn as much as you can, research, ask questions, participate in discussions like this one and be ready to serve your client to the best of your knowledge. Take the precausions of advising the client in writing that they need to know what is at stake and that they should pay for a consultation with a CPA or and Attorney so they are informed of their legal rights and consequences.

Thank you Tina for making me think about this, that is what a good post is all about. Well deserving of a gold star, Thanks a lot house!

Antonio

 

Jul 08, 2009 04:10 AM #79
Rainer
73,333
Barbara Singleterry
S Squared Group - Keller Williams Realty - Roseville, CA
Honesty - Integrity- Loyalty

My limited experience with short sales has left me with these observations:

1.Document everything, phone calls, meetings, emails, faxes etc. Be prepared to resubmit information several times to make sure everything is received by the lender.

2.The lenders do not seem to have systems or processes in place to make the transaction go smoothly.  Extreme patience and follow up is needed to get answers in a timely fashion and to be able to go forward.

3.Just as with copiers and other office machines, ALWAYS speak nicely of the bank's short sale negotiator, soft comments, gentle nudges and LOTS of positive feedback get better and faster results.

I am not an expert by any means, have only had one short sale listing in my short time as a Realtor, but I started in this market and I won't shy away from them if it will help my clients in the long run.  Oh, and I am in California if that makes a difference.

Jul 08, 2009 05:34 AM #80
Anonymous
Catherine Coy

Tina, I agree with you completely.  Processing and negotiating short sales is a time-consuming effort and is best left to those who do nothing else, all day every day.  Since Fannie Mae recently announced that a realtor's commission is not to be negotiated, why would an agent step over the dollars to get to the dimes by processing their own short sales?  I don't get it.

 

Jul 08, 2009 05:45 AM #81
Rainer
9,316
Mori Langshaw
DMV Realty Group LLC - Fort Washington, MD

Cahterine, not sure if you mean they are not negotiating and making it 6% with no negotiation or you think Fannie and Freddie will cut and then there is no negotiation.?.?.? Fannie has a policy in place regarding that very subject ---> http://blog.miamire.com/fannie-mae-stops-cutting-real-estate-commissions-a-short-sale

Now, "stepping over dollars to get the dimes"?  Not sure if you follow major real estate markets but 65% (on the low side) up to 80% of homes on the market are short sales, REO's or some form of distressed situation.  Its just good business sense to follow the trends, especially, while most of your competition is staying away from it...

I wish there was a statistic that had the number of full time agents 3 years ago vs NOW.  That statistic will show why you should be "dealing with the dimes..."

Jul 08, 2009 05:58 AM #82
Anonymous
Ken Speer (Anna Banana Realty)

Tina - Great post.  I truly appreciate reading all of the comments.  Thanks to everyone who has taken time to discuss.  I am currently waiting on 'the bank' to respond to an offer my client has made.  It is quite evident that short sales are going to be with us for some time.  As Mori stated, we are professionals, and sharing these comments helps keep all of us 'informed' and/or encourages us to remain so.  I'm new to AR, and am learning a lot from everyone.

Jul 08, 2009 06:44 AM #83
Rainer
34,797
Peter Just
Corcoran Group - Palm Beach - Palm Beach, FL

Tina, 

Great reading. I have tried about 10 short sales as a Buyer Agent, still waiting for one to really work all the way.

Is there any kind of statistic anywhere as to the percentage that go to the closing table? In my opinion the banks/lenders are totally mismanaging the short sale process. Shame on them.

Tons of money are lost in the process. I wonder if the share holders have any clue as to what is happening, and the price tag for it all???

Why don't they hire Real Estate experts to run the show, on a consultant basis?

Sigh, I think I am giving up on short sales!

peterwjust.com

Jul 08, 2009 09:23 AM #84
Rainmaker
255,765
Kristi DeFazio
RE/MAX Advantage - Colorado Springs, CO
Colorado Springs Rea lEstate 719-459-5468

I am working with a short sale and the realtor on the listing side has turned it over to a company to handle the negotiantions, etc... We'll see how it goes. I think anyone doing short sales should get the CDPE designation. I am getting it and hear it is extrememly helpful.

Jul 08, 2009 09:27 AM #85
Ambassador
2,753,514
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Of course a real estate agent should not be negotiating with a lender for a short seller.  Neither should a real estate agent be negotiating for a buyer. 

Sellers negotiate with the lender and that may be through their agent.  Buyers negotiate with the sellers and that will usually be through their agent. 

Negotiating involves making decisions and that's not our job. 

I know that many agents like to believe that they can negotiate for their buyer or seller client, but that is assuming a lot more risk than this real estate broker is willing to do. 

Be careful out there.  The lawsuits and board and commission complaints over short sales has not even begun. 

If you call yourself an expert anything, you'd better have a higher level of training and certification that identifies you as just that. 

 

Jul 08, 2009 10:36 AM #86
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