The Short Sale - Can be a Long Sail...

Education & Training with Executive Director of Education at eXp Realty

What is it and how can it work for you?
In a Short Sale, you have to negotiate with the bank holding the mortgage, and get them to accept less than what the seller owes.  We are seeing a lot of transactions like this in the current market.  Your buyers and sellers may have questions regarding the advantages and dis-advantages of the Short Sale.  One thing for sure, you might have to be in it for the long sail.

In my humble opinion, I think it's better to do a Short Sale, than a foreclosure or bankruptcy.  I feel that the advantages of the Short Sale far out-weigh the advantages of a foreclosure or bankruptcy on your record.  A foreclosure does affect your credit and the ability to purchase another home anytime in the near future.  I'd like to share some notes I took from last weeks seminar regarding these transaction types.  You can also go see the short sales expert.

Why do banks negotiate and accept  Short Sales?
There are many reasons banks that will agree to a Short Sale but the most common include:

  • The mortgage is past due or in a foreclosure
  • The property is in poor condition
  • The owner has suffered a hardship and can't make the payments
  • The area or neighborhood has depreciated in valueSan Francisco Bay Sailing
  • New homes built are being chosen over the resale properties
  • The banks shareholders are concerned when there are too many
    defaulting loans on the books
  • Some banks are required to prove a loss each month
  • An REO is a liability, not an asset.  Too many liabilities will cause
    any business to go under if not dealt with properly and quickly

What are the steps to a successful Short Sale?
Each bank may have different requirements and regulations, this is just a sample scenario

  1. Find a distressed property
  2. Meet with the homeowner to put something together
  3. Get a signed "Authorization to Release Form"
  4. Create a contract to reflect your offer to the bank
  5. Call the loss mitigation dept. at the bank
  6. Fax them your offer along with the following:
    a. Cover Letter explanation of why you can't offer full price
    b. The owners signed sales contract
    c. Justified Sales Comps of the area
    d. Pictures of the property condition
    e. An estimated net sheet or closing statement
    f. A hardship letter from the homeowner concerned of bankruptcy
    g. Detailed list of estimated costs for needed repairs

What happens to the homeowners credit?
When you negotiate a successful Short Sale, remember that the agreed upon price is payment in full.  However, the homeowners may still owe the difference between the mortgage balance and the discounted amount if the bank pursues the owners via a "deficiency judgement".  If granted, this judgement will affect the homeowners and their credit report just as any judgment would.  You must get the bank to agree to accept "payment in full without pursuit of any deficiency judgment." 

In addition, you need to explain to the homeowner that the discounted amount (the difference between the mortgage balance and the Short Sale) may be declared as income on their tax return by means of a "1099".  The homeowners should always consult with their accountant or a legal professional for advice.

This information is being provided to you based on a recent "Short Sale / Foreclosure" seminar, in which agents were informed of different marketing ideas regarding distressed and Bank owned properties (REO's).  This post was created to share those ideas and concepts, and hopefully provide a better understanding of the Short Sale for you and your clients.  Here is what other members have posted regarding Short Sales on Active Rain.


Posted by



"Learn More. Get More. Do More. Be More."

Comments (43)

John Occhi
Excellence in Real Estate Tm @ Allison James Estates & Homes - San Jacinto, CA
ePRO, Five Star Certified, Riverside Cnty REO Expert, 951.443.6259


This was a really good post that said a lot.  Well organized and well presented.

I wish I could be more concise in my writing - instead I just ramble to say what I have to say - but you know different people learn differently and I know I help many, so what the heck - it is what it is.

Hoping to make your California Real Estate Investment...
A Pleasant and Profitable Experience,

John Occhi, Hemet CA REALTOR 
Realtor Consultant to Foreclosure Investors
Mission Grove Realty

PS - this is my other blog

Jul 16, 2007 05:40 PM
Brad Andersohn
Executive Director of Education at eXp Realty - Fairfield, CA
ActiveBrad - 707.646.1876
Thanks John - appreciate that compliment very much!
Jul 17, 2007 01:32 AM
Lisette Perez
United Home Mortgage Center - Port St Lucie, FL

Hi Brad,

This is an excellent post not only for Realtors but for Mtg brokers as well.  I have a client who bought a home in foreclosure and we were able to negotiate a short sale with the bank.  This worked out great for my buyer.

Thanks for your information. 



Aug 02, 2007 09:09 AM
Esko Kiuru
Bethesda, MD


Very thorough post on short sales. They can be profitable for a buyer, but there is a lot of work involved, as you outline. If you don't approach the bank in the right manner, they won't even look at your proposal. At times it appears the banks are not acting in their own best interest. And the possible tax consequence to the seller is often overlooked.

Aug 02, 2007 09:18 AM
Brad Andersohn
Executive Director of Education at eXp Realty - Fairfield, CA
ActiveBrad - 707.646.1876
Lisette - glad that worked out for you and your client. This post is good for anyone in our industry who has the need to really understand the short sale. I appreciate your comment, and I am glad things worked out well for your buyer. Thanks!!
Aug 03, 2007 04:27 AM
Brad Andersohn
Executive Director of Education at eXp Realty - Fairfield, CA
ActiveBrad - 707.646.1876
Esko - excellent comment and very true.  I have a connection here in the Bay Area that actually helps the Brokers and Agents with this whole process.  He has investors that get the ball rolling with the banks and he handles all the Loss Mitigation with the appropriate lenders. He does ask a fee, but what a load off the seller and the agent.  He is quite successful marketing his service to companies in my area, especially in this market.
Aug 03, 2007 04:30 AM
Stephen C. Olczak
Mortgage Help - Fort Myers, FL
Brad, very informing.  There are many SS's going on here in SW Florida and I am trying to learn more. Question:  when the SS is finally closed and all parties go their own way, is the original mortgage replaced with a brand new mortgage from a lender of the buyer's choice?
Aug 04, 2007 09:47 AM
Ron Petruccione

Steve, I know you asked Brad...  Brad, I hope you don't mind but the answer is yes. Occasionally the Bank will the original loan will try to sweeten the deal by offering an 8th less on the rate just to get the deal. client. 

The short answer is, yes, Buyers Choice.

Brad, the reason for my post was to inform your readers about a company located in Southern Calif. that actually processes short sale transactions for agents and assists in their marketing efforts to establish them as a short sale specialist.

We handle all the phone calls, paperwork, negotiations, etc... with the lenders, title, escrow, buyers and sellers. Deal with price reductions with the seller, include two BPO's from nationally recognised BPO companies, -1 at inception and an update if necessary, assigned a processor (paperwork) and a representative (consultations), just to mention a few things. Basically every step to take it from Listing to Close.

This will allow the agent to focus on what they do best, find homeowners and deligate the paperwork processing to a company who has the relationships and expertise in place to get the job done.

We are in many states already. Additionally we are not investors or real estate agents. We don't step on anyones toes, you keep your relationships with your vendors. We will use your title and escrow for example.

The owner/founder is Ron Garber, his name should be familiar to those who where in the last Foreclosure/REO market. He was an Asset Mngr. for a financial institutions entire West Coast REO portfolio and worked with 26 other lending institutions REO properties. The rest of his bio along with Vanessa Liddel bio -who brings over 25 years of escrow experience and is the company President can be seen at the company site.

Sorry if this sounded like a paid announcement, that would be because I am the Dir. of Business Development for Sincerely though, short sales are everywhere, most Expired and FSBO's are short sales.  Agents need to either have the processing system and expertise in place or align with a company that does.  Brokerage firms will not survive this market shift unless they close a majority of their short sales. We are filling that niche on a national scale.

Feel free to call with any questions or visit the website. We are obviously constantly updating the site and building an FAQ area in an effort to assist the the call volume. Our site will become more VR regarding the  progress of the agents transaction.

Thank you Brad for maintaining a quality blog with current a relavent information on this shifting market.

Ron Petruccione

Dir. of Business Develpoment


Aug 04, 2007 01:21 PM
Stephen C. Olczak
Mortgage Help - Fort Myers, FL
Thanks, I heard of one realtor listing 17 SS's in one month because he approached a bank and offered to move their distressed properties.  This is going to be big for a while.
Aug 05, 2007 10:56 AM
Brad Andersohn
Executive Director of Education at eXp Realty - Fairfield, CA
ActiveBrad - 707.646.1876

Stephen - I think you are correct in saying that this is going to be big for a while.  In some cases, we have seen hundreds of these transactions opened in a branch in a single area.  I hope that this information is useful to those who need to understand the short sale and the process or options!

Ron - your comment might be considered by many here on AR to be spam, but under these conditions, and because of it's relevance, I am going to leave it here on my blog.  Also, for the record, Ron did call me on my cell this weekend to ask me permission to comment in this manner.  I approved and am grateful he added this valuable information.  I have a client that does the same thing here in Central California, and has been able to help many brokers and agents with the whole short sale process as broken down by Ron's comment.  Thanks Ron, you're a gentleman and a scholar.  I hope we can network and do some business together in the near and distant future! Thanks!!

Aug 05, 2007 02:57 PM
Rosemary Brooks
BMC Real Estate - 209-910-3706 - Stockton, CA
The Mother & Daughter Realty Team
Out did yourself again! Great post.  I'll bookmark.
Aug 05, 2007 05:09 PM
Brad Andersohn
Executive Director of Education at eXp Realty - Fairfield, CA
ActiveBrad - 707.646.1876

Thanks Rosemary - nice to hear from you again, I have been very busy, and not much time for blogging these days!  I hope all is well with you and your family...miss our little parties! LOL! :-)

Aug 05, 2007 05:37 PM
Julia Wei
Law Offices of Peter N. Brewer - Palo Alto, CA
where home values are solid, we have been called in to negotiate with lenders on the short sales in Woodside, etc. 
Aug 09, 2007 05:15 AM
Brad Andersohn
Executive Director of Education at eXp Realty - Fairfield, CA
ActiveBrad - 707.646.1876
thanks for the information regarding the Peninsula and in Woodside. I think there are short sales everywhere.  some are past that and have gone into foreclosure.  :-(
Aug 09, 2007 12:12 PM
Faina Sechzer
Henderson-Sotheby's International Realty - Princeton, NJ
Real Estate Expert - Princeton, Montgomery ,Hopewell, NJ

Brad, I have not had any experience with short sales yet and your post made it much clearer in my mind. I was wandering if and how in particular can a real estate agent  be helpful to clients contemplating short sale, since the way I understand it, the process is not to market the property but to negotiate with the bank.

I checked out your site and am very impressed that you are doing what 101 marketing says, but few of us do - your offer information useful to your clients. If it's useful, they will stay on the site (as I did); no hyper marketing required. Thanks.  

Aug 10, 2007 04:09 AM
Brad Andersohn
Executive Director of Education at eXp Realty - Fairfield, CA
ActiveBrad - 707.646.1876

Faina - the more you know and understand the short sale process, the better you'll be able to help your clients. I will never claim to be the expert, but there are quite a few out there.  I just close the deals that are opened with us.  Hopefully this post gives you a bit more insight and information to work with.

Thanks you for your kind words in your comment and for the compliment!!  B-)

Aug 10, 2007 08:55 AM
Brad Andersohn
Executive Director of Education at eXp Realty - Fairfield, CA
ActiveBrad - 707.646.1876

Thank you, corrections have been made to this posts thanks to Yvonne.  I had made some typos that she caught and informed me needed to be changed.  Only spelling typos, the data and information is still accurate!

Jan 02, 2008 11:53 AM
Brad Andersohn
Executive Director of Education at eXp Realty - Fairfield, CA
ActiveBrad - 707.646.1876

Sylvia McFadden - please do not add your comments and spam to members' posts on AR.  Feel free to join our Network and create Blog posts of your own.  Your comments are just getting deleted by members and reported as SPAM, and as a result, wasting all your time and efforts.  Respectfully, Thanks. :-)

Sep 29, 2008 05:27 AM
Jon Christopher

Most people don't believe me but I had a short sale take over a year.  The bank was going through a restructering and they kept changing their policies mid stream.  It was a nightmare but the discount was worth the trouble.

Oct 06, 2008 02:53 PM
Brad Andersohn
Executive Director of Education at eXp Realty - Fairfield, CA
ActiveBrad - 707.646.1876

Jon - I have seen them take even longer, that's why I have connected to some really great people on AR who know what they're doing and can handle these for my friends and clients.  They are truly anything BUT a short sale!  Thanks for the comment.  :-)

Oct 06, 2008 03:42 PM