Real Estate Attorney with THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY

Why does it take 3.8 contracts to sell a short sale property?  Why do Realtors insist on spinning their wheels and getting nowhere selling short sale properties?

My office handles a lot of short sale transactions and we work with Realtors on the short sale negotiation side of the transaction as well as legally advise the buyer or seller in the transaction. I have long been a proponent of fixing the system because we as taxpayers are going to pay the bill for the inability or unwillingness of lenders to create the fix themselves. See BANKS CREATE BILLIONS (MORE) IN LOSSES.

Back in December I had a very interesting discussion with a senior loan mitigation officer for a national lender about multiple contracts before one became "real".  I told him our experience was an unscientific 4 contracts before a buyer stayed with a deal.  The loan officer said their internal study was 3.8 contracts.  Close enough. 

The problem is that we see all sorts of reasons why the buyer walks away from a short sale contract.  Most of the reasons relate to the buyer having no risk in the transaction.  Here is an unofficial list of RED FLAGS:

1.  There is no deposit.  Sometimes the deposit is to be made upon bank approval of the contract. 

2.  The deposit is $1000 or less and the contract states that all contingencies, including financing and inspections, don't begin until the bank approval of the contract.

3.  The effective date of the contract is not until the bank approval of the contract.

4.  There is a pre-approval of the financing for the buyer but not a commitment.

The problem of a buyer having no risk is that buyers can make offers on multiple properties, knowing in advance that they are only going to buy one or two and also having no risk to their deposit (if there is one) since they can legally back out during the contingency period.  Additionally, the seller - already cash strapped - is probably not going to hire an attorney for the retrieval of the $1000 deposit even if it were at risk.  All the "get rich in short sale" seminars promote this scheme.

Of course the banks are also to blame for the high contract number.  They take way too long to process short sale files and their procedures are totally inconsistent both internally and from bank to bank (or investor to investor).  But there are too many contract offers to process timely because of the way the contracts are written.

The loan officer said that to stop this waste of time, his bank wanted to receive offers that were contingent only on the bank's approval of the contract with closing within two weeks from that approval.  The program they were testing was designed to process a short sale contract that met these parameters in only 21 days.  This would mean the entire time from contract offer to contract closing would be 5 weeks.

Frankly, I find this to be a magnificent idea.  But I could only hope that a lender that got a contract contingent only on the lender's approval would actually process that contract in 21 days.

Here is what the ideal contract would look like:

1.  Contract price within parameters to current market value.

2.  Financing commitment in place with lock for 45 days.

3.  Inspections completed and accepted.

Any Realtor with a serious buyer - or any Realtor fed up with phony contracts - should push their buyer to submit a contract under these parameters.  The result may change the way short sales are sold forevermore. And the results may give you more time for golf or skiing or time with the children instead of needlessly spinning your wheels.  But the real impetus to getting this done must he the banks that have to approve the short sale.  Only a concerted and cooperative effort by the banks holding these mortgages will allow a global change in the way short sale offers are received and accepted.

Copyright 2009 Richard P. Zaretsky, Esq.

Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make.  This article is for information purposes and is not specific advice to any one reader. 

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660 - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide!  New Website  See our easy to find articles at Need Short Sale Information? - These Articles Probably Answer Your Question


Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Gabe Sanders 02/01/2009 02:10 AM
  2. Larry Brewer - Benchmark Realty llc 09/16/2010 01:09 AM
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Karen Fiddler, Broker/Owner
Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA
Orange County & Lake Arrowhead, CA (949)510-2395

I'm on the same wave length....I urge the listing agent to take our offer and open escrow. I put our real deposit into escrow and then wait. We can't lock rates until we have approval because they expire and then the buyer gets frustrated and I don't want to pay for inspections etc because banks are pushing back and then we are stuck. I do think that we need to open escrows on these...I'll work to keep my buyer and we all win...and it takes less time. I get these done in 45 days on average.

Jan 31, 2009 01:32 AM #1
Herb Hamilton
RE/MAX Preferred Inc. Realtors - Portland, OR
Real Estate Broker ,CDPE, Downtown Portland

The real problem is that most lending institutions believe they must re-invent the wheel. They care not about how others are doing it. In every instance that I have had the oft times displeasure of speaking with the lenders loss mitigation department they dictated how they were going to handle the transaction.

Offering advice, suggestions and or demands makes no difference. The response is always the same. " That is the way WE DO IT! "

It is different from lender to lender in every case.

There is only one key to working short sales and or foreclosures. PATIENCE !

Jan 31, 2009 01:40 AM #2
Judy Chapman
Referral Network of Illinois LLC - Chicago, IL

It's up to the lenders to get their act together. Until they put a stop to having multiple offers on the table and letting the buyer and seller wait until mold grows between their toes, then buyers must protect themselves with home inspection, lender approval, delayed deposits, and other contingencies.

Thanks for another informative post.


Jan 31, 2009 02:34 AM #3
Wendy Rulnick
Rulnick Realty, Inc. - Destin, FL
"It's Wendy... It's Sold!"

Richard - Ideally, your suggestions are excellent.  I do get deposits upfront.  Cannot get buyers to normally do their home inspections, paying $350 in advance, prior to short sale lender approval.  Cannot get buyers to spend another $350 on their own lender's appraisal prior to short sale lender approval.  I only send in one offer and place my listing under deposit.  Countrywide will not care about deadlines in the purchase and sale agreement.  I just lost a sale with CW because the buyer's 1031 clock ran out- CW knew it.

Jan 31, 2009 03:18 AM #4
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Wendy - you are right. It is one of those "theoretically logical" vs. "realistically impossible" tugs of war.  That a lender actually made a big deal about it (for one of our deals they said "submit with contingencies gone and loan commitment in place, and we will approve in 10 days") in this one instance thus prompted our discussion - and thus this article.

This lender was motivated to try to fix the system. It was not Countrywide, but it was a very big lender.  If enough banks think the same way and promote this type of approach then the work of brokers and buyers will be that much simpler and the banks will begin to find an end to this downward spiral.

Regards, Richard

Jan 31, 2009 06:16 AM #5
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX


This program would work if this were an extreme sellers market! As is there are always other more friendly sellers.

It's to bad for both the sellers the FDIC and ultimately the tax payers. The last vestige of fools is always stupid arrogance.


Jan 31, 2009 08:02 AM #6
Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices


We tried to get things this way, but having them pay for inspection did not work. However, we push them to agree to 120-150 days. At least they have to agree to wait, and this is at least something.

Jan 31, 2009 03:24 PM #7
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

nice featured post today Jon!

Jan 31, 2009 11:50 PM #8
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Thanks Richard.  Easier said than done though.  As long as the banks/lenders continue to draw out the process, it remains a difficult transaction to say the least.

Feb 01, 2009 02:11 AM #9
Vicki Watzlawick
Broker (The Watz Team) Exit Strategy Realty - Algonquin, IL
Illinois Foreclosure Expert, The Watz Team

I agree with Wendy,  if you were representing a buyer would you suggest they jeopardize approximately $700 for appraisal & inspection fees without a release?

Feb 01, 2009 09:44 AM #10
Wendy Smith
Wendy Smith Real Estate - Clearwater, FL
Real Estate Advisor

Jon - good idea about putting that kind of [buyer] wait time in a contract and nowadays, as a listing agent, a good faith deposit is required when the SELLER accepts the contract. 

Richard - that would be great if lenders would fast-track pre-approved buyers but we both know they will dawdle on cash sales - no financing contingencies.  I suppose if the buyer were savvy enough, he could self-inspect and waive any further right to inspect but that doesn't happen very often.


Feb 21, 2009 08:56 AM #11
Paul Begemann
Attorney Paul H. Begemann - Hamden, CT

Very informative post, many people in the sort sale process are not focusing on the deficiency - and in other states (not FL and not CT where I practice) deficiencies ae limited - so it is possible that a seller is exposing themselves to a deficiency in a short sale which would not exist in a foreclosure.

Mar 02, 2009 12:46 AM #12
Dick and Dixie Sells
Sells Real Estate, LLC - Trinity, FL
Realtors, Tampa Bay Florida Homes For Sale

The escrow deposit, yes I definitely agree. The home inspection, agree in some situations. The loan approval is a tough one as the appraisal timeframe runs out, as does some docs that the buyer must provide. But we need something to keep the deals in tact. In some cases the extended time frame for approval is the main problem.

Feb 15, 2010 11:29 AM #13
Kevin M. Willson

Well said once again Wendy.

Sep 16, 2010 02:21 AM #14
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