Dan's Danger Words: "I Want to Keep My House"

By
Real Estate Broker/Owner with StepStone Realty, LLC 572467

I can't tell you how many times I've heard a distressed seller say just that.  "I want to keep the house."  And yet, everything they tell me about their situation says that they can't.  If you hear these words, know that your client is in DANGER!

Its time to sit your client down and have a very serious and honest talk.  This is NOT the time to sugar-coat the discussion!

My company, EZShorts.com, has completed over 400 short sales, but that means we've probably talked to nearly 1,000 homeowners who are behind on their payments.  And some CAN keep their house.  Don't get me wrong.  But if you tell me you aren't working, and don't have any employment lined up, a loan modification is NOT going to work!

Over the years, I've identified three major "dangers" when I hear those words.  By knowing and understanding what they are, you, as real estate agents and brokers, can talk openly and honestly with your client and hopefully get them in the direction they need to go, which is typically a short sale (or just a regular sale if there is equity).

1.  They will buy into loan modification scams.  I've seen this happen.  I know of one investor in my community who charges clients $500/month just to stall the foreclosure and let them live in the house for "free".  Clients will do this because they believe that job is just around the corner.  But even if they find one, by the time they do, they've piled up so much arrearage, the lender still won't do a loan modification.  Not only that, but should they do one?  If they add $10k to the end of a loan, they've essentially added $10k to the amound owed on the house.  If the house is already underwater, was it worth it just to stay in the home?  Desperate people do desperate things.  Don't let your client act desperately!

2.  They will declare bankruptcy.  Don't get me wrong.  Sometimes they should declare bankruptcy.  But only if their other debts justify it.  People trust attorneys to give good advise, but, unfortunately, attorneys often give advise that is best for the attorney.  The fact is, a bankruptcy will not save the home.  It is a delay-tactic (see #1 as to why this does not help even if you get a job), but ultimately, that house note is going to be taken out of the bankruptcy as it is security debt.  When it does, that lender is READY to foreclose, and the arrears have piled up so high that saving the home is out of the question.  So what did your client gain by declaring bankruptcy?  They've spent some money on an attorney and are now saddled with the same problem PLUS a bankruptcy on their credit report.

3.  They will wait too long to decide to sell it.  I can't begin to count the number of times I've had clients disappear to "figure out a way to save their home" only to return a few days before their home is auctioned.  In many of those cases, it was too late for us to help and they were foreclosed on.

The talk you will have with these clients is not easy.  Telling someone that their best (and really only) option is to sell their home... the possession they've loved and worked so hard to get is one of the more difficult things we have to do as real estate professionals. 

But in the end, your clients will thank you for the "tough talk".

Posted by

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StepStone Realty, LLC

Find out more at:  www.StepStoneTexas.com

Comments (12)

Sarah, John Rummage
Benchmark Realty LLC, Nashville TN 615.516.5233 - Nashville, TN
Love Being Realtors® in the Nashville TN Area!

Daniel, I agree a tough talk is necessary.  But most of the time I don't feel like the one qualified to give it.  I am not an attorney and don't know all the laws of the state, nor the seller's complete financial situation, so the best I can do is refer to an attorney.   

If it is a short sale, we are now referring out. 

Things really are difficult and complicated these days. I wish, so wish, I could help more folks.  I need all the tips I can get.

Sarah

Sep 10, 2010 04:15 AM
Shannon Ziccardi
"A Quick Note" ...in Tennessee! - Clarksville, TN
"A Quick Note" Mobile Notary ...in Tennessee!

There is nothing wrong with wanting to hold onto your largest investment.  Here, in California, values went away so quickly that many entire neighborhoods were underwater in what seemed like a blink of an eye.  Homeowners, Lenders and those in a mortgage-related business were all caught flat-footed. 

Further complicating matters is a Federal government that cannot seem to figure out what they want.  Lenders are understandably reluctant to do anything.  Homeowners who have no other investments and have put everything they have (and in most cases more than they have) into their home want to do everything legal to hold onto their homes. 

For Jumbo loan folks who are often more than $200k up-side down (and in a market where job difficulties haven't improved much at 12.5% unemployment) and where rentals are often as much as an affordable house payment might be, it clearly makes sense to hang in there. 

The Obama administration has led the American people to believe that there may be a path to holding on as well.  While this is distasteful to some, it is their last hope for a place in the life-boat.  Short sales are one tool and I know many people who have benefited from them.  Still, the recent turn of events [in our economy] have soured many on what was once the American dream.

Sep 10, 2010 04:33 AM
StepStone Realty
StepStone Realty, LLC - Austin, TX
Freedom to Succeed

Thanks for the great comments!

Sarah - You definitely should not say anything you aren't comfortable with, but hopefully you tell them to figure it out quickly.  Its #3 (waiting too long) that I see most often. 

And there are alternatives to referring out your short sales.  You don't have to be an expert to list them professionally!  Hopefully you'll check out EZShorts.com!

Shannon -- Absolutely there is nothing wrong with someone wanting to keep their home!  Its very understandable.  But if its not realistic, then its time for that "tough talk".  I wish they could all keep it, though!

Sep 10, 2010 04:40 AM
Teresa Cooper
Home Solution Real Estate Services - North Charleston, SC
SC Lowcountry - Charleston, Dorchester, Berkeley

Dan - 400 short sales??? Kudos!  I've done just over a dozen in the last few months, and you're absolutely correct!  Negotiating the short sale is NOTHING compared to the "Let's Get Real" talk you have to have with the client.  My frustration is the folks at the two ends of the spectrum:  1 - the folks who help you write down their income and expenses, and still can't understand the math - INCOME < EXPENSES.  and 2 - the folks who probably COULD afford to continue to make their house payments, but are not willing to give up "necessary" luxuries of big, expensive cars, dining out at expensive restaurants, etc - you know who I'm talking about!

 

And yes, I'm still a staunch believer in the American Dream!

Sep 10, 2010 04:43 AM
StepStone Realty
StepStone Realty, LLC - Austin, TX
Freedom to Succeed

LOL Teresa, that's for sure.  We can't fix everyone's bad habits.  But we can be honest and upfront, right? :)

And yes, over 400... but we've been negotiating short sales since 2004!  Currently we're negotiating for agents and even some agents who are active here on Active Rain!

Sep 10, 2010 04:47 AM
Linda Schneider
Fast Newsletters - San Diego, CA
Fast Newsletters for Real Estate Agents

I think agents can just hand a copy of this post to their short sale prospects. It does the talking for us. Thanks.

Sep 10, 2010 06:15 AM
Aaron Vaughn, REALTOR© 830-358-0455
eXp Realty - Canyon Lake, TX
My knowledge is your power | eXp Realty

"attorneys often give advise that is best for the attorney."

Amen to that, brother! Great post, Dan!

Sep 10, 2010 10:14 AM
Jack B.
BSSI - Austin, TX

Hhhhmmm, I'm Dan's biz partner and I think Linda's idea is HOT!!  ...we have to implement a new flyer tool soon!  :-)

Great comments all....thanks!!

Sep 10, 2010 12:17 PM
Eugene Adan
Adan Properties, Carlsbad, CA (760) 720-9710 - Carlsbad, CA
Carlsbad Real Estate

The Dads,

Great post.  The psyche of the seller is something we've never had to deal with before, at least, to this depth.  It is like dealing with grief and loss.

Sep 14, 2010 04:31 AM
Joetta Fort
The DiGiorgio Group - Arvada, CO
Independent Broker, Homes Denver to Boulder

Isn't there some way to make suggestions to the AR staff - that idea of a tool that will turn a post like this one into a flyer is a great one. For now, I'm creating a post of links to helpful posts for sellers. May I include this one?

Sep 23, 2010 10:47 AM
StepStone Realty
StepStone Realty, LLC - Austin, TX
Freedom to Succeed

Thanks, Joetta, of course you can!  Thanks for asking :)

Sep 23, 2010 11:16 AM
Michael Izquierdo
LA Pocket Listings - South Pasadena, CA

Good post,

I hate having that talk. Its a shame so many loan mod scams are out there taking advantage of desperate homeowners.  

Oct 02, 2010 01:32 PM