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Short Sale Seller: Everyone is Getting Paid But Me.

By
Managing Real Estate Broker with Howard Hanna Rand Realty License # 49FA1074963

Just about every home sale is stressful on the seller. A short sale, given the higher stakes and financial ramifications, often has even more stress for the seller than a typical transaction. On a few occasions, I have had a short sale client lament that they are "left out" in a way, in that everyone is going to walk away from the closing with money except them. Short sale sellers realize no proceeds at closing. 

I recall the first instance where this occurred; the seller didn't really want to sell, and was dismayed at what her perceived as a feeding frenzy around him over his loss. The agents were making a fee, the lawyers were getting a check, and he'd lose his house. It didn't seem right to him. The listing expired unsold 3 years ago, and it remains unsold with the 3rd listing agent. I don't think the people could let go. 

So what it in it for someone to do a short sale when they don't get any money? Quite a bit if you ask me. 

You avoid a foreclosure. A good point was made by the Distressed Property Institute in the CDPE course: negative trade lines lose their punch and fall off over time, but the one question on every mortgage application is "have you ever had a foreclosure?" 

You leave your home with dignity. That goes for you and the neighborhood. Anyone who sells their home moves out on their own terms. Nobody evicts them, and nobody knocks on the door informing them he represents the lender and the house is now theirs. Short sale sellers pack their things and move to their next home like anyone else. And the neighborhood avoids the blight of a bank owned REO and all the baggage that comes with it. 

You minimize the impact to your credit. A foreclosure is a nuclear event in credit. I could name nothing worse. While many people who do sell short have late payments, if they manage things correctly they can often be qualified to buy again in 24 months.

You avoid a deficiency judgment. A properly negotiated short sale typically results in the waiver of any deficiency. The slate is wiped clean. As I told my former client, if he just let the house go to foreclosure he wouldn't get any money either. Worse, a deficiency judgment could haunt him thereafter. 

I suppose there are other reasons, but to those who view a short sale as unpalatable, I would ask what they'd propose as a better option. Sometimes you have to choose your poison. Banks aren't modifying loans these days- as a matter of fact, many of my clients came to me after they were turned down a 2nd and 3rd attempt to modify. You may not walk away with money in a short sale these days. But in a successfully negotiated short sale, do do get something few people consider: a second chance. 

To add one more point, there are programs coming into prominence that do offer sellers a small stipend in a short sale, some as much as $7,000. I saw a letter from Chase today referencing up to a $20,000 credit for a short sale. I am sure the small print is copious for that, but HAFA is the first place we are going with our clients in short sales so they can get a credit from their lender at closing. Not every short sale broker is alike. You need a good one who knows how to get the debt discharged and the deficiency waived. 

Eileen Hsu
Douglas Elliman Real Estate - Manhattan, NY
LICENSED REAL ESTATE SALESPERSON

Well said J Philip. I wish this reblog function works in ActiveRain and I can reblog this. I hear this from the short sale sellers all the time. See you in few weeks!

Mar 25, 2011 04:44 PM
Cindy Westfall
Premiere Property Group,LLC Portland Metro & Suburbs Oregon - Tualatin, OR
ABR,GRI Your Tualatin & Portland Metro Real Estate

Hi J Phillip, I agree with Eileen, This is a fantastic post that I would reblog as well in a second. You have given some great advice to homeowners that still have the option to do a short sale. Your explanations are really good.

Mar 25, 2011 04:53 PM
Suzanne Taylor
Ultima Real Estate - Corpus Christi - Corpus Christi, TX
Home Sales In Corpus Christi, TX

J Phillip - I agree with the previous two comments, you wrote a great post with many valid reasons why folks should go ahead with the short sale option versus foreclosure. 

Mar 25, 2011 04:59 PM
Dave Halpern
Dave Halpern Real Estate Agent, Inc., Louisville, KY (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Phillip,

Very astute post. Many sellers are so relieved to put the mortgage behind them, but get a bit sad at the end of the closing when checks start moving around the table and none have their name on it.

For many it is a bittersweet experience. Hopefully they realize the great benefits that you spelled out in your post.

Mar 25, 2011 05:10 PM
Adam R. Cohn
STANDARD MORTGAGE CO. - Delray Beach, FL
We actually get mortgages closed FAST!

Very good blog post, Hope you have a great weekend.

goodnight

Adam

Mar 25, 2011 05:13 PM
Peter Pfann @ eXp Realty Pfanntastic Properties in Victoria, Since 1986.
eXp Realty, Victoria BC www.pfanntastic.com - Victoria, BC
Talk To or Text Peter 250-213-9490

Hi J Philip,

Even though we see few if any short sales in Canada, Your blog was very clear and spot on regarding the key reasons why it is better than the alternatives.

Thanks for sharing

Mar 25, 2011 05:19 PM
Tni LeBlanc, Realtor®, J.D.
Mint Properties, Lic. #01871795 - Santa Maria, CA
Tenacious Tni (805) 878-9879

Phil -

You are so right.  Avoiding a foreclosure and deficiency is key.  Even in California which is a non-deficiency state, there are situations where a lender will pursue you after foreclosure so it's short sale or a BK for some.  A well negotiated short sale can be a tremendous benefit.

Tni

Mar 25, 2011 05:20 PM
Debbie Gartner
The Flooring Girl - White Plains, NY
The Flooring Girl & Blog Stylist -Dynamo Marketers

Yes, that second chance is a big thing and everyone deserves one.

Mar 25, 2011 10:39 PM
Kat Palmiotti
eXp Commercial, Referral Divison - Kalispell, MT
Helping your Montana dreams take root

Yes, doing a short sale and walking away, even with no money, can be the best alternative for some home owners, and having a list of decision points to help them realize why it's the best decision is great!

Thanks for the post.

Mar 26, 2011 12:30 AM
Gay E. Rosen
Julia B. Fee Sotheby's International Realty - Larchmont, NY
As Real as Real Estate Gets!

HI Phil: So true... reading the fine print for that credit -not too many qualify for that but it is there and well worth knowing about.. I am still friends with my clietns who have had short sales... I feel for them, think about them, and I guess I need to know they are doing okay... I also let them know that other properties in their area are selling for far less than what I had obtained for them. They at least have a chance at a fresh start...   Best, Gay

Mar 26, 2011 01:00 AM
Christine Smith
Buyers Brokers Only LLC - www.BuyersBrokersOnly.com - Canton, MA
Exclusive Buyer Agent & Attorney, Canton, MA

Phil....that is so true & yet I imagine it must be so difficult for some sellers to grasp that.  I have had buyers who see that too....feeling a little badly about taking advantage of someone else's misfortune (that's how they feel sometimes) & feeling the sadness in the house sometimes when looking at a short sale listing.  I remind them of the things you have listed above. 

Mar 26, 2011 01:40 AM
Judy Jennings
Top Agent Plus - Middleboro, MA
Tap into Judy's real estate expertise & resources.

Phil - We can certainly empathize with the short sale seller. However, the alternative is much more damaging, and for a longer period of time.  A second chance is a good thing. Suggested.

Mar 26, 2011 02:27 AM
Bryan Robertson
Los Altos, CA

Phil - I think it's nice the banks are giving short sellers something, at least once in a while.  As you say, a short sale is a much more graceful way to exist the home and better for a sellers credit.

Mar 26, 2011 04:09 AM
Dan and Amy Schuman
Howard Hanna Real Estate Services - Solon, OH
Luxury Home Specialists

I could definitely see a seller being resentful because everyone else ( after a lot of hard work ) is getting paid. After all the benefits are explained to them, most probably come to their senses and realize a short sale is in their best interests.

Mar 26, 2011 08:56 AM
xxxx xxxx
xxxx - Alexandria, PA

That is absolutely right on.  I think most short sale sellers are just ready to move on and get on with their lives.

Mar 26, 2011 01:30 PM
J. Philip Faranda
Howard Hanna Rand Realty - Yorktown Heights, NY
Associate Broker / Office Manager

Eileen- See you at Raincamp!

Cindy- Use it in good health. 

Suzanne- in weighing the options I can't believe anyone wouldn't choose a short sale. 

Dave- it is bittersweet. It takes an adjustment and soul searching in some cases. 

Adam- THANK you!

Peter/Linda- you are most welcome. 

Tni- We think it makes the most seanse most of the time also. 

Debbie- I would never underestimate the power of a second chance. 

Kathleen- The pros outweigh the cons by far from where I sit. But people sometimes still need to process it.

Gay- you raise a good point, I have had people call me later, shocked at how things got worse after THEY sold. 

Christine- when people are distressed the bright side is what I try and accentuate. 

Judy- thanks, and yes, a foreclosure is the nuclear option I would never take!

Bryan- if done right the neighbors wouldn't even know. 

Dan and Amy- in some cases they shouldn't be, because they already took out that moey via an ill-advised refinance!

Phil- The majority are. There are a few that do get bummed about all that money changing hands. 

Mar 26, 2011 05:33 PM
Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate

It is amazing to me how many lenders will not modify and then will see a huge loss with a sale. It makes no sense what so ever!

Mar 27, 2011 12:24 AM
J. Philip Faranda
Howard Hanna Rand Realty - Yorktown Heights, NY
Associate Broker / Office Manager

Bill- "common sense" and "lender" are seldom used in the same sentence. 

Mar 27, 2011 02:51 AM