Short Sale Suicide...and How To Prevent It! (part One)

Real Estate Agent with Sherman Smith & Associates 00682119

Short Sale Suicide...and How To Prevent It!

Also How To Determine If A Listing Agent Is Committing Short Sale Suicide...

A Two Part Series Presented by Sherman Smith


Part One

I am about to upset some of my fellow agents but they need to hear this.  However before I do, I want to give you my qualifications in regards to short sales.

I have been selling real estate in Orange County, California since 1978.  I have my own brokerage company named, Sherman Smith & Associates, which I founded in 1989.  At the time of writing this I have completed 105 closed short sales with a large variety of banks, savings & loans, finance companies, insurance companies and private note holders.  I have negotiated as little as a $15,000 loss and as much as a $386,000 loss on a multiple unit building.  Through these transactions I have learned what works and what does not.

With no further introductions here goes the upsetting information!

 It is no wonder that 50% of all short sales do not close.  It is because of the listing agents!  Yes, the listing agent! They have no clue what they are doing; they have taken one of those short sale seminars given by someone who has never completed a short sale. I have seen these seminars/workshops that cost anywhere from $49.00 to $2,400.00.  I have to say I could tell you everything you would ever need to know about a short sale in about 3 hours.

Why do I blame the listing agent?  Well, let me tell you what they are not doing and what they are doing wrong. In other words, how they are committing short sale suicide and killing their own sale.

Seller does not qualify for a short sale:

The Numero Uno most important part of the short sale is:  Does the seller qualify for a short sale?  Is there a legitimate hardship?  What is the reason the seller can't continue making the payments or why do they have to sell?  This is the make-it or break-it part of the short sale.  Don't waste your time if the seller does not have a true hardship.  There is another way called "Hardball" if the seller does not have a hardship but that is only for experienced short sale agents. (Well talk about that another day.)

More than one seller on title:

If there is more than one seller on the property they better both have a hardship.  If one has good income, other properties, etc and the other one has a hardship the short sale is not going to fly.  Don't waste your time unless the strong one is willing to contribute to the loss.


All Payments are current:  (Seller does not want a late on their credit report)

If the seller is not behind in their payments, the lender has no reason to expect that the seller will default.  Your seller MUST be behind in their payments to get the lenders attention.  Ask your seller this question: "If push comes to shove, will you let the property go to foreclosure"?  If their answer is "No" they are not serious and don't waste your time on the short sale because it probably will not happen.

Listing the property with less than 45 days to the Trust Deed Sale:

The seller is in foreclosure and only has three weeks before the bank takes the property.  There is no time to get things done unless you have a cash buyer for the property.  Lenders will not hold up the foreclosure so you can find a buyer.  I make it a policy that I need a minimum of 60 days but you can still do it in 45.

Pricing the property too low:

The property's real value is $450,000 in this market.  You list the property at $350,000 to attract buyers and figure the bank can counter the price.  Don't do that!  List the property at $465,000 then after two or three weeks lower the price to $450,000 (given you have time).  After another three weeks lower the price to $435,000 and so on.  This way you are showing the bank that you are trying to get them the most money you can for this property.  As you get closer to the Trust Deed sale, you must get more aggressive with the price but at the same time, you need to show the bank you are looking out for their best interest too.

Offering a selling agent commission above 3%:

I see this one all the time.  As a matter of fact, this past week I saw a listing with an 8% commission to the selling agent.  In the remarks it said "commission subject to the lenders approval and split 50/50".  There is not a lender out there who will let you pay a selling agent anything above 3% so do not try to fool anyone with the exaggerated commissions.  If you see it on a listing don't get your hopes up because it won't happen.

Telling the selling agent that their commission is subject to the banks approval:

Who wants to show a property to their client without knowing what they are getting paid?  No one; you see it on almost 95% of all short sales.  As I stated before, I closed 105 short sales.  Of the 105, two or three sales I received less than 5% total commission.  I would be willing to bet that on 75% I received 6% total commission and the balance I received something between 5 and 6%.  Since I wanted other agents to show my short sale listings I promised them a full non-negotiated 3% no matter what I received.  Bare in mind, I almost always received 5 to 6% and agents were not afraid to show my listings.  If agents do not show your listings it won't get sold!

Forgetting who is your client:

Your client is NOT the bank!  Your fiduciary relationship is with the seller. Yes, the bank must approve the shortage but your fiduciary relationship is not with the bank.  You must look out for the best interest of your seller.  Sometimes that means going against the wishes of the bank; I will explain below (See No Doc Loan (Liar loan) vs Tax Returns).

Offering to pay closing cost or carpet allowance:

Don't offer to pay closing cost or a painting allowance.  The bank will not allow that cost.  They won't allow you to pay anything above title, escrow, recording, back taxes and association dues. They won't even pay for repairs or a home warranty, so don't offer!

Not countering the offer:

You receive an offer on the property.  The buyer has low balled the price, wants a long escrow, and wants the seller to pay $10,000 of the buyers closing cost.  What do you do?  You meet with your client (The Seller) and draft a counter offer eliminating the things you know the lender will not take and try to get the best price you can from that buyer.  When you think you have done the best you can, you then send the offer along with the counters to the bank.  The bank now can see that you have tried your best to protect their interest.

Sending more than one offer to the bank:

You receive more than one offer on the property.  What do you do?  NEVER! NEVER! NEVER! Send more than one offer to the bank at a time.  Do I have to repeat myself?  NEVER! You meet with your client and either counter both offers to get the best one or you pick one offer and send it to the bank.  You have no obligation to present all offers to the bank.  This only confuses the bank and slows the process.  You have already countered the offers and sent the best one anyway.  If another offer comes in while you have one at the bank it will become a backup offer in case the first offer goes away; but do not send it to the bank.  Keep it until you know the status of the first offer.

Not sending ALL the required paper work at one time:

Most banks will not approve the short sale with out an offer.  Some will, and by all means, do so, if you can. It is so much easier if they will start the process without an offer.  However, since most banks will not, make sure that your client completes the documentation prior to you receiving an offer on the property.  This will enable you to process the short sale faster.  The bank will have a list of their required documentation.  Be sure that you have it ALL and ready to go before you get the offer; when you send it to the bank make sure you have everything that they require.  If you piece meal it, the short sale will be delayed or worst yet reject.

Organize your required paper work:

I would suggest that you have your lender help you put it in a file just like they were submitting it for a loan approval to an underwriter. The first time I did that the processor called me to tell me that it was so organized that she was going to process it right now!  Now not all lenders will do that but it does help and it gets noticed because no other agents are doing that.


Not making a copy of EVERYTHING you send to the bank:

The bank will loose your complete package or at least part of it.  Be sure that nothing is sent to the bank that you do not have a copy of.  I can't tell you why but I can tell you that it will happen.

No Doc Loan (Liar loan) vs Tax Returns:

This one is delicate. Did your client buy this property with a "No Doc Loan"?  If so, you may have a problem if the lender is requiring tax returns for the short sale and they don't agree with the original loan docs.  I am not an attorney and don't give legal advice however this could appear to the lender as a little fraudulent (like being a little pregnant).  This is where you have to advise your client to seek legal advice of refuse to supply the tax returns to the lender.  This makes the short sale harder but not impossible.

Don't take No as a final answer:

Don't take a turn down as the final answer.  Some lenders turn you down to see what the seller will do.  Will the seller resume with their payments, make a contribution to the loss?  There is always a reason to go back to the lender for another try.  Don't forget the old saying "Threes a charm".

Notes: I use bank and lender synonymous with all type of lending institutions. The information here is not carved in stone. It is in generalities as to how short sales are done and yes there are exceptions to every situation.  This is a guideline as to how to not waste your time on deals that can't be done.

Sherman Smith

Sherman Smith & Associates

1173 Irvine Blvd

Tustin, CA 92780

(714) 544-5445





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Sheri Sanders
Berkshire Hathaway C Dan Joyner Realtors - Easley, SC
Realtor/Broker - Easley, SC Real Estate


Thank you so much for your excellent advice!

Dec 26, 2007 04:16 PM #1
Peter Testa
Nationwide Homes - Danbury, CT
Hopefully Realtors are doing their best to get up to speed on this niche market. It's unfortunate when a Seller loses their home so an Agent can learn what not to do on a short sale. When you work on a short sale you can't cruise through the deal & expect it to work - it's time to roll up the sleeves! In the end you'll feel a real sense of accomplishment that you saved your Seller from foreclosure. Good Luck
Dec 26, 2007 04:27 PM #2
Jonathan Osman
Jonathan and Associates, Inc - Charlotte, NC
Charlotte House Hunter Group
This is awesome info!  Thanks a lot.  Have you ever dealt with a short sale situation on a VA property?  I was told today that the VA would not accept a short sale?  Is that true?
Dec 26, 2007 04:47 PM #3
Hector M. Yepis Realtor Broker
RE/MAX Island Properties - Kihei, HI
TEAM MAUI Real Estate
Wow, lots of valuable information!! I think short sales are really going to be prevalent in the upcoming year or two. Thanks a lot for sharing your experience and knowledge with us. I will definitely keep you on my "Must read" blog subscriptions. Would you mind fielding some questions I might have later down the road. I appreciate your help. Aloha from Maui, Hector
Dec 26, 2007 04:57 PM #4

Thank you Steve for the very good advice.  I have one question. Why do you say you do not have to present all offers to the bank.  My broker would have me by the throat if I did not present all offers.  Though I agree with you, my broker and Arizona Commisoner says present all offer.


Thank you again for all the information

Dec 27, 2007 05:15 AM #5
David Shriver
DaltonWade Real Estate Group - Brooksville, FL
Your information was like a textbook to me. I am striving to become an expert at short sales without my client having to pay dearly for my education. Insight like yours helps us all.
Dec 27, 2007 06:37 AM #6
Sherman Smith
In response to the Agent from Arizona who did not leave his/her name. The bank is not your client. You have an obligation to present all offers to your client then forward the best one to the bank. I reviewed this by my attorney and he said I had no obligation to the bank. I am working with the bank on behalf of my client. Good luck on your short sales.
Dec 27, 2007 08:17 AM #7
Eve Friske
Great information and it is nice to see that someone has not forgotten that our client is the seller.  So often it seems that realtors forget this important point and think the bank is their client. 
Jan 07, 2008 05:53 PM #8
Ryan Vivo
Gateway Realty - Fairfield, CA
NRBA Realtor Solano County, Gateway Realty 707-384-5894
Great tips.  I feel that I have learned quite a bit from reading the whole article thanks.
Apr 16, 2008 09:50 AM #9
Matthew Heavener
ERA Heavener Realty Co. - Jacksonville, FL
Now this is a good shortsale article.  Don't take it if you don't want to work it!
Apr 16, 2008 01:52 PM #10
Ted Cowan
Strategic Real Estate Coach - Pacific Palisades, CA


Sherman, you nailed each one of the obstacles we have faced as we have sought to teach investors and Reatlors how to work with one another.  We negotiate hundreds of short sale s each year, and have been doing so long before the foreclosure crisis hit. In shifting our focus to teaching investors and Realtors how to work with one another, we expected agents would be difficult, but I have been surprised by the  misinformation and the myopic attitudes that we've often encountered. Your voice needs to be heard more frequently as Realtors will tend to listen to another Realtor over an investor, no matter how many deals have been successfully completed be each.  

In addressing the comments on the blog above, we successfully negotiate short sales on investment properties monthly; we list the property immediately in Ca,AZ and Fl; we never submit multiple offers for many reasons . . . 



Apr 28, 2008 11:14 AM #12
Jim Dvorovy
Cutler Real Estate - Canton, OH
REALTOR - Canton Ohio Real Estate
Sherman -  Thanks for taking the time to state your strategies so succinctly, it is much appreciated! You have incredibly good teaching skills.
May 01, 2008 02:48 PM #14
Sidney Jimenez
Keller Williams - Miramar, FL
CDPE, Short Sale Expert, 954-665-9449,

SHERMAN-I know you wrote this a while ago but I have found that there are ways to get an approval for a short sale even if the client hasn't missed any payments. You will need to show that there is a very good likelyhood that there will be missed payments soon--whether it's a loss of a job, the client has been borrowing to keep the payments current or something in that vain.

I've had very good success with submitting just one contract. Aside from the ethical questions of submitting multiple contracts and/or offers I have noticed that the lenders are quicker to act on a single contract than a file that is receiving multiple contracts or offers.

Sherman, I think the silence we are hearing from the NAR and local real estate governing bodies is very troubling, as far as the process and handling of the short sales. It seems every one is waiting for the lawsuits to start flying and waiting for the legal system to set the parameters of dealing with these sales. It's just a matter of time before some jilted buyers or scorned sellers start blaming the agents for this mess. I would recommend to everyone to be very careful as to how you proceed with these deals.

As a side bar, in the very least I think submitting several offers further hurts the market since we have so many willing and able buyers just waiting around while there are so many others that being foreclosed. For me, the market is not as bad as it might seem with the naked eye. It seems the majority of agents are submitting several offers. That's several buyers that will probably walk away in frustration when they have waited 2 or 3 months for nothing. This market can't afford ONE buyer to walk away.

May 05, 2008 07:15 AM #15
Mark Ryan
Mark Ryan Group / Re/Max Victory - Dayton, OH
Broker, CRS, ABR, CDPE

We have not done 105... we sure do our share and I would say Sherman is right on... We do the multi offer thing a bit different but good advice...


Jun 05, 2008 04:06 PM #16
John Occhi
Mason Real Estate - Temecula, CA
SRES,CPRES.ePRO - Temecula-Murrieta CA Real Estate


This is one of the most complete articles I have seen covering so many different aspects of short sales - thank you for this.


Dec 09, 2009 04:31 PM #17
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