I had no idea at the beginning of 2007 that I would be working with these things called "short sales". Yet, there seems to have been a baptism by fire of Realtors in my area, and I'm sure elsewhere around the Country, to the ins and outs of a short sale.
Dealing with a short sale scenario is like walking a tight rope. Banks will not usually entertain the idea of a short sale until you have missed a payment or two. And when a client is headed down that path, their property better be priced to attract the buyers, because they are now on the path to foreclosure. You can't waste any of the time between the first missed payment and the late/catch-up notices, foreclosure notices, etc, being overpriced and not having buyers coming through the house. You really need to be in the best pricing position for the neighborhood if you are going to have a hope of getting a buyer to help you complete the short sale.
As a short sale lister, I know first hand the trouble you and your clients must go through to get to the point of even having the bank primed and ready to look at a short sale offer. First there's the missed payment, then the hardship letter and financial statements (detailing every penny your client spend on everything from utilities, credit cards, medications etc). And if you are lucky enough to get the bank to start the appraisal process on the property, you can get an idea of what they will be willing to accept. It's an amazing thing (I say sarcastically), but banks actually don't like selling below market value anymore than your average homeowner.
So once you've got the appraisal, and you are sweating, waiting for the contract, you call the bank EVERYDAY, for hopes of getting your negotiator, even though you don't have anything to give them. You are looking for a preapproval, which banks are unlikely to give if they have no offer. Perhaps, you start negotiating the DEED IN LIEU of foreclosure...if you are smart, that is. Because all the things the bank needs to have done to give you a thumbs up or down on the contract you will eventually have, are things they will have already done if they are contemplating the deed in lieu. Appraisal, title work, etc.
So you get the offer. Don't forget to send it with a HUD-1 to detail the bottomline to the bank. Not sending it could delay your answer on the offer by another week, and you are already looking at 8-10 days minimum as it is. So call your favorite settlement attorney and beg for a favor.
Eventually your negotiator calls and tells you what the investor is willing to do. Hopefully, to make things less complicated, you are only dealing with one mortgage, thereby, one investor. If you have two mortgages, both investors have to agree. And in a bigger bank, or dealing with two separate banks, this can get MESSY.
So on the BUYING end, it has amazed me to call up listing agents and hear, "Yes, we are preapproved for a short sale." Really, I think to myself. Then I ask, "How many payments have your clients missed?" "None yet, thank God. Mentally, I have already moved on to the next listing. I know, from my lisitng experience, that is going nowhere. And yet, if you were to call 5 short sale listings today and ask those two questions, you would find the same thing.
Of course, this may be the fault of the person at the bank, in a department not qualified to preapprove you, saying that you are preapproved for a short sale when you "do the following," and an assumption is made by the listing agent. But rest assured, a bank has little, if any reason to approve a short sale if an expensive and lengthy foreclosure is clearly pending on the horizon.
And from the perspective of sellers again, it is our job as Realtors to explain, not just the mechanics of the short sale, but also point them in the direction of attorneys and tax accountants that can explain the implications FINANCIALLY of a short sale. The bank is not likely to say, "Well, thanks for finding us another buyer. You're free and clear of this now." Most times sellers are either 1) put on a payment schedule for paying back the short fall or 2) required to claim the short fall as income, thereby having to pay taxes on it or 3) a combination of the two. Your negotiating skills can come in handy here in working out the best solution for your sellers with the investor, and still making the deal go through. Sadly, I just get the impression that sellers really do think they are off the hook financially for the difference and forgiven immediately.
What a blessing to learn so many things in one year! And lessons that can help sellers and buyers! The drawback is that it is unfortunate to be learning these things while helping families in stressful and hardship situations. I only know that I am a better Realtor for having gone through this year and these situations.