Short Sale Strategies- Getting The Facts Straight For Sellers With Money- Case In Point
Let me set the record straight with who can get a short sale approved and who can not.
The main answer to the question is that is all depends on the lender and their policies regarding approving short sales.
Most lenders would rather have a short sale approved then foreclose on yet another property even if there is no financial hardship.
There are some lenders who will only approve short sales for financial hardships and others who will approve short sales if the terms are right for just about anybody.
Before taking on short sales you need to find out the policies of each of the short sale lenders that you will come into contact with.
It is simply NOT true when agents tell you that your clients without financial hardships can not do a short sale. In fact, just the mere fact that an agent is making a judgment call like that without knowing or trying is doing a disservice to a seller. It depends on how hard you want to fight for your sellers.
There are a lot of blogs out there where agents who say they know how to do short sales are not stating the facts correctly.
Just because your seller does not have a financial hardship does not mean they will not get approved for a short sale.
First let's get clear on what a short sale is since even after the last several years of short sales being prominent here in Florida, many states are just now beginning to experience short sales in their respective markets. A short sale is when a seller's property is worth less and will only sell for less than what the seller owes to his lender. So the seller is going to have to ask his lender to accept less than a full pay off of what he borrowed from his lender. It is up to his lender to say yes or no or yes with conditions.
A short sale is a short pay off of a loan, nothing more, nothing less. There are many terms and conditions that can be attached to a short pay off.
So now that we all understand what a short sale actually is we can look at some different possible outcomes for a wealthy seller, an investor or a non financial hardship case. There are also many cases where the seller may appear not to have any hardship but after you ask some probing questions you may discover hardships that the seller may not think of. I will write a short sale strategy post on this process.
One other thing I want to get really straight right now is that we do list and sell short sale listings and we have clients from all different financial backgrounds and situations. So the cases I will expand upon are real but I can not disclose the names to protect the identity of clients' financials. I want to make it very clear that these are true cases. I am not making this stuff up. I am not teaching out of some real estate book. I am not out in left field. I am in my own back yard, my own field of short sales. So if you want to listen to agents who don't do short sales but tell you how to do them, that is your decision. We are in the trenches. We carry a lot of listings and we close a lot of short sales.
When you first do your intake evaluation with a potential short sale client you must make certain things very clear and you must assess the client's situation. Financial hardships are relative and you can create a good case if you know the right questions to ask.
When we have clients who have money in their bank accounts or who own several to many other properties we will not take their short sale listing unless they agree to participate in the terms of the short sale. The usual way that a short sale lender treats a short sale is that the more financially strong the homeowner is, the more the lender is going to want them to contribute with a cash contribution towards the short fall and/or a promissory note.
We have closed on short sales where there is not a financial hardship for the homeowner but that something else changed in their lives. We just closed one that Broker Bryant referred to us where the sellers have great credit, they own and live in a home in another state and they no longer wanted their rental here.
They had tenants in the rental who were paying the mortgage. Their lender turned down our first short sale offer because the sellers were current on their mortgage on the rental which is the property they wanted to do the short sale on. So then they stopped paying their mortgage.
We received another offer. You should have seen the bank statements and what they used their money for. They were also paying off their credit card debt. They kept the rental money too. The first lien holder let them off free and clear through our negotiations with them. The second lien holder asked for a $30,000 promissory note which we negotiated down to $13,000 with payment of $110 per month and ZERO interest. This was a great offer for these sellers and they understood going into this deal that they would be required to participate in some way.
It was not our job to judge their motives or whether they were 'worthy' of a short sale approval or not. Our job was to negotiate the best possible outcome for them based on their own set of circumstances.
We never take their initial offer as fact. Everything is negotiable.
Nearly every situation where there is not a hardship case the seller is going to be adding cash or signing a note. If the sellers do not want to take part in that then we don't take the listing. There are many ways around this situation which we won't go into now- suffice it to say- you got to pay if you want to play.
We have another listing where the seller owes over 2.6 Million dollars ( not disclosing exact #s). We just got approval on the short sale to close in the $600,000's. The buyer is going to pay all cash. The lender wants a $25,000 cash contribution. The buyer and seller are going to pay that contribution to the short sale lender.
Case in point- Seller has over 1 million dollars in his bank account and has some joint accounts. He was going to pay to play then changed his mind. We have been through several buyers because the lender wants a cash contribution from the seller of $50,000 but the seller does not want to take that out of his bank account. He owns several other properties and is not late on any mortgage payment except this one. This is not sitting too well with his lender. They feel he is getting off too easy. We negotiate back, saying, what does it matter, still better than a foreclosure. Now we finally found a buyer who is going to contribute a large hunk of this and the seller now will finally contribute to make the short sale happen. We will get this closed.
Case in point- Seller owns many properties around the country. They want to short sale their rental here in Florida. They make very good money. We will only accept their short sale listing if they agree to contribute to the short sale financially. We know their lender and they will be able to do the short sale. The seller agrees to participate financially if that is a condition. Knowing this lender- they most likely will require a contribution. The seller understands this and will participate. Investors can get short sales approved. We have one investor where we have listed and sold 4 of his properties so far as short sales and all were approved. By the way, all of his were Countrywide loans.
Case in point- Doctors and attorneys. We list and negotiate short sales for attorneys' personal and investment properties. We have already listed and closed short sales for 2 attorneys and are in negotiations on short sales for 3 other attorneys right now. The attorneys look great on credit and paper. It is all about selling their story. They all understand that based on their occupations alone they are going to be scrutinized and expected to play ball with cash to close or promissory notes. Many attorneys have taken a hit in income depending on what their specialty is. So although they may be able to pay a mortgage payment of $3500 a month; they no longer can make payments of $7,500 a month. If the lenders are not going to approve their loan modification which has been the case for each of our attorney clients their best option may be to try to get a short sale approved, cut their losses and move on with their lives and businesses.
The biggest obstacle is getting your short sale file to the upper management in these cases because employees at these servicers are looking at the occupation of 'attorney' or 'doctor' and instantly judge them to be some rich people who are much better off than they are. Diligence is key here.
Hopefully this clears up some misconceptions as to who may get approved for a short sale. Please remember this is based on Florida stats, Florida laws and the way the lenders treat properties in Florida which is going to be much different than in Arizona or other trust deed states. The only constant is that rules and policies change in regards to short sales often.
For more information about Florida Short Sales- click here.
To view Florida Short Sales- Click here. We know Palm Beach County Short Sales and Port St Lucie Florida Short Sales and will help you get your home Sold if you need to Sell your home and help you buy your home in Palm Beach County Florida : Call us today.
Short Sale Strategies- Getting The Facts Straight- Case In Point! -was first published on South- Florida-Luxury-Living.com.
Copyright © 2009 By Katerina Gasset, All Rights Reserved.*Short Sale Strategies- Getting The Facts Straight- Case In Point!.*
Nestor Gasset and Katerina Gasset- Realtors®, CIPS, ABR, SFR, GRI, REOS
Katrina,
I am fortunate to live in a part of the country where short sales are not the order of the day and I have to say for that I am thankful. But I found this post to be very informative and look to learn more from you.
I'm glad I read this informative post all the way. Again, I'm in a better general understanding of short sale approval.
Finely someone who absolutely knows the truth about short sales. I have done short sales in two other recessions and you are dead on with this blog.
Thanks for another informative post about short sales, Nestor & Katerina! :)
Leilani
Katerina:
Very well done. Illuminating. To the point. With real world examples. What could be more credible?
"I am not out in left field."
hahaha! No you're not. haven't you heard? You're in the Twlight Zone, alongside with me! ;)
I share the same experiences as you and I am in the trust deed state of California. I would think you guys have it harder than us because of the deficiency. But I guess if you do this early enough where the lender sees they can take a loss now rather in 1.5 years (is that your foreclosure time line?), they will do it.
Guys, you rock. . .I'm so much into short sales and I recognize your post as one level above some training seminars available right now.
Thanks for posting it. . .
This is very timely as I am meeting with customers this morning who want to short sell their rental. They live on the other side of Florida and it is just not feasible for them to keep this. They are not behind on their mortgage either. Thanks guys, great info and this is worthy of re-blog.
I agree Katerina! I just closed a short sale in which the retired owners were not behind. They have a home in Florida and a home in Michigan. This rental was sucking the life out of them. We got the short sale closed and didn't touch any of their savings or retirement.
Great information. We have tons of short sales in So. Cal. I have been on the buy side but not sell. This is very useful.
Katerina, I have been rolling this around in my head since "the other blogger" seemed to think that only the down and out and destitute are candiadates for short sales... You beat me to it and said it alot better than I could have, good blog!
Hi Katerina. Thanks for the post and the footnote, "Please remember this is based on Florida stats, Florida laws and the way the lenders treat properties in Florida." ~ Lana
Katerina - This is an excellent post! What a timely post, just today I heard someone in the industry state "seller's never contribute money towards a short sale." Thank you for clearing this up.
Katerina... from what I know and from talking to you and Nestor... it seems that not only have you squashed some rumors, but you laid it out well in this post. Overall, you make some excellent points and you bring up some good examples.. Nice job here.
Amiri- If the sellers obtain legal counsel for foreclosure defense it buys us the time we need to negotiate their short sale. The foreclosure defense attorneys, (if they do their job- another post for another time)- then we can usually get 2 and even 3 years. It also depends on the property, like if it is condo that the bank does not want to touch with a ten foot pole- they may not ever foreclose! As long as the bank does not foreclose they can count it as an asset for the full amount of the note not the value of the property. We have clients in condos who just want free rent and have been there for over 2 years without paying a mortgage payment. FLorida is also a judicial state so there has to be an entire suit process followed and a good attorney will call the lender's attorney on many of their errors. We are also a deed state. The judge has to actually order a new certificate of sale, in other words, the judge has to physically take the deed away from the homeowner. As bogged down as the court filings are- just the shear number is overwhelming the court clerks and then the clerks cut back their hours because of budget cuts and most of the judges are in favor of the homeowners and will apply all rule of law in the cases and give the time you need to get the property sold as a short sale.
The foreclosures that are threatened and happen quicker are usually the ones where the homeowner just keeps ignoring the law suit, the lis pendens and does not answer the complaint.
Katerina - It does all "depend". I tell even severe hardship cases they still might need to contribute or they still might be denied. Especially if they have really good credit. It's all upfront, no glossing over it.....
Great information Katerina as usuall. I totally agree that not all shorts are hardship cases, which is true here in AZ. Agents do make judgements rather quickly without really understanding the full story. We always have the clients meet with attorney/CPA before meeting with us.
Wow. This really is great info. Being mostly a buyer's agent, and staying away from short sale listing, I really was really uninformed on this topic. Thanks so much for putting together such a quality post!
Katerina -- very well explained. You are SO right in saying that an agent must find out the policies of the lender before agreeing to do a short sale. Lenders policies are indeed different as you so eloquently point out.
I don't know what price range your short sale listings are. Here in Ohio, we are dealing with anything between $20,000 to $200,000 on short sales, the majority at the $100,000 mark. We have so many, that in my experience, the lender will rather foreclose than deal with a short sale, unless there is a true hardship, and even then some lenders are notorious for just dragging it out till they finally can take it back at Sheriff's auction. At that point, the borrower most of the time has not made payments for at least a year. Based on some other agents Ihave talked to, the lender is more motivated to do a short sale if the property is a $500,00 for example. Is that your experience as well?
In my workshops, I usually mention that there are more hardships than financial ones (as you state in your post): death, divorce, illness or medically related, job loss, job transfer, military deployment, etc.
Maybe it's just me (and if I'm wrong, I apologize), but the tone of your post sends me a message that there's "something rotten in the state of Denmark." Hope it gets better soon!
Katerina,
I am sure this post has helped to clear up some misconceptions about short sales. First thing is, in these cases, real estate professionals if not well versed in the process, should refer the business. Why play roulette with people's lives and houses?
Just wanted to say thank you for sharing everything that you do on short sales
Great post. I haven't listed any short sales yet and I love using your first hand experience to keep up with what's going on. Thanks for the information.
Very interesting to hear that you don't have to have a financial hardship to qualify. I thought you did
Susanne- Absolutely not. We close on short sales from 100K to 1 Million. I don't know anything about the laws or customs of your area so I really can not say whether that could be the case or not. I just highly doubt it. A lot of it had to do with how hard is it in your state to take a house back and what are the homeowners doing to defend the banks actions. We just got an approval today from BofA for a sale at 137K. No promissory note, no cash from seller. I find that it mostly depends on the ability of the agent or attorney to negotiate and who they can get up the ladder to. Sometimes you have to go to the top. Katerina
Wendy- If they have a severe hardship we go to the top to get them off of the homeowners backs. The homeowner's best option could be bankruptcy- the lender will usually want to work things out more then. Also, 60% of the closings here are cash buyers- the cash buyers can pay the cash outlay for the seller to the lender. Thanks for the comment, I had to clear things up. :) Katerina
Melissa-My patience is wearing thin and I am trying to be as nice as pie- but when we are actually closing short sales and certain others want to point out that what we say you can do in a short sale they say that is not the case-.... well, sometimes defending the facts is in order. No apology necessary.
Finally a straight forward well written post about short sales. I am getting my RE Sales license shortly and since I am in a Very high short sale area This was Extremely Helpful.
Katerina and Nestor- As usual, I have learned something by reading your information on short sales- thanks so much!
Jim Hale- I don't know- I am out in left field (you know,) or maybe the twighlight zone:) Hmmm, we actually do these and close them. We even proved it and still the naysayers say it can not be done. Oh well, at least I can state the facts. No one can dispute them. Katerina
Jeff Payne- Our market is so different here in Florida, as you well know. Thanks for your support. I am just setting the facts down and I just wish I could send them the financials! Of course I would not so my word will have to be well, my word. I just can not believe that people say that something can not be done that we are doing! Katerina
Fernando- That is one of the things that drives me crazy about the trainings, most are out dated experiences and theories. Just like college, the profs never do what they teach in real life in the real world yet they swear it is what it is, what they teach is how things are, NOT! Real life stuff and how to get the deal done are not often trained on. I am shocked at how many agents come to us with a buyers offer and the agent has a distressed property certification and yet does not know one thing about how to do a short sale. Katerina
Nestor & Katerina - Thank you for another informative post about short sales. In Arizona we have to deal with them on everyday bases.
Katrina...
But what are the liabilities of a seller releasing all of his financial information? Isn't it theoretically possible that the owner of the mortgage could foreclose and sue for the shortage based on the seller's disclosures?
"Please remember this is based on Florida stats, Florida laws and the way the lenders treat properties in Florida"
I wish you would have started off the post with this disclaimer.
Interesting info anyway.
Thank you for the very imformative post. Some very interesting scenarios were described. Isn't it a shame that most lenders still don't have a "well-oiled" mechanism for dealing with the short sale process?
Richard- If you don't disclose your financials, you don't get a short sale approved or even looked at. The seller when they got the original loan gladly gave all of their financials in order to get approved for their mortgage. In essence, much of what their short sale lender finds is on their credit report. All short sale lenders pull the credit reports. They are going to do that when they foreclose also to see what assets they may go after. There is not much that they can not find out these days.
Richard- I am not an attorney but my thinking is that if the sellers financials changed for the worse from the time they gave their financials when getting the loan or their refi- it would be better than the bank using the original financials which they have on the owner. The seller did get a mortgage in the first place.
It is important to know these things. Thank you for sharing the knowledge.
Also, do I understand correctly, in your experience ...since the loan was secured with the real estate, the client's assets are not available for the bank to recover in a short sale, as they would be in bankruptcy, correct?
Andrew- as you can read in the comments people in CA are saying just about the same thing and they have a trust deed state and a non deficiency state for certain loans. Of course, there is no blanket situation because of different creditor laws in different states. There is still much of this that you can use in your state and for negotiating purposes it is highly likely to be similar. Katerina
Dawn- That depends on the state you live in. Florida is an asset protection state. That mean that no creditor besides, IRS, State Property Taxes, Mechanics Liens, HOAs and Mortgage lien holders can foreclose. Then after a short sale they have up to 5 years to seek the deficiency in a judgment. But they can not garnish the head of household, they can grab bank accounts unless the income from the head of household is being deposited there, they can only garnish a portion of the secondary person, of course they can not go after the spouse if the spouse was not on the mortgage. THat is why a lot of people move to Florida when they get into financial situations. This is a whole other subject and there is more to write about this topic.
The note is secured by real estate but HELOCs are treated as a credit line, so they can be sued on aside from the real estate, they charge it off and sue on the promissory note part of it. Katerina
Katerina - Another great post regarding short sales ! There are so many misconceptions out there. I am glad that you bring to light "hardship" cases. As you say, it all depends on the lender ! Am going to tweet this post right now : )
I'm glad to see this post. There are many people short sale experts, but you back it up. Thanks for sharing these FL examples. Hopefully, they will help a Florida agent in need.
I completely agree. I just closed a short sale on a california real estateinvestor, who main hardship was investing in Florida real estate that tanked. Other than that, no divorce, no medical problems, no job loss.
A great read about short sales. My company, American Homeowner Preservation (AHP) has discovered exactly what you said: every lender is different. We have had lenders welcome short sales with open arms and others who no amount of hoop jumping could help.
If you need a short sale in Florida these Realtors are absolutely the only choice for Palm Beach County and local areas. No-one in Wellington knows short sales better than these guys.
Well stated Katerina. Folks that aren't in Florida dealing with short sales everyday have no clue what we do and how we do it. Short sales evolve at a rapid pace and the only way to stay up on the changes it be in the trenches everyday all day.
I have short sales pending right now for a cardio surgeon that makes over $600,000 a year, an invester that owns 10 properties around the country, an attorney/broker that owns multiple properties and others that folks would think wouldn;t be able to get a short sale.
Keep preachin' it Katerina.
great info. especially in a time like this where short sales are so much more common.
Katerina - your posts (as usual) are packed with useful information. My question is, who decided to call them "Short Sales?" Isn't that an oxymoron? They are anything but "Short" in many cases. lol~ As BB says, keep preachin it sister!! :-)
Nestor & Katerina:
Thank you for such an informative post. I appreciate what you have said. You do an intake evaluation and the seller must agree to participate in the terms of the short sale. I couldn't aree more!!! What I see here in Texas are agents who take the listing without doing any kind of evaluation and then whoops, they have an offer. They haven't done their homework, they don't know what goes into a short sale package and they don't know who to call. They do nothing but muck up everything and make a mess!
Very helpful post...I sell in the short sale capital Lee county fl...
Good to know. I hear of the these case but have never been so sure of them but this helps.
Great info, I am going to take another read on this later. In Maui the short sale market is alive and well. Thansk for your time.
Good information - thanks for pulling this all together!
Brad- LOL! Yes, funny terminology. It should say, short to the bank and long to everyone else:)
Well written, as usual Katerina. There are MANY misperceptions about short sales. Too many agents who know LITTLE to nothing about them are handling them.
Yesterday I called to show a property in our MLS. The agent replied that we could show it, understanding it was a short sale and could not be sold without another lot that was also for sale (that info was not in our MLS). Then she proceeded to tell me that the seller lied at listing, that she didn't disclose liens and that under no circumstances could it be sold for less than what was owed (and that was list price).
This agent has no clue how to do a short sale. In the end, we declined to show it, which is a shame for her seller.
Well written, as usual Katerina. There are MANY misperceptions about short sales. Too many agents who know LITTLE to nothing about them are handling them.
Yesterday I called to show a property in our MLS. The agent replied that we could show it, understanding it was a short sale and could not be sold without another lot that was also for sale (that info was not in our MLS). Then she proceeded to tell me that the seller lied at listing, that she didn't disclose liens and that under no circumstances could it be sold for less than what was owed (and that was list price).
This agent has no clue how to do a short sale. In the end, we declined to show it, which is a shame for her seller.
This is great information. I am going to copy this and send it to a couple of my agents. Would it be possible for me to send you a direct email and ask advice on a situation with one of my agents? Thanks in advance.
Great post. Thank yu for sharing this valuable information. I am involved in 2 short sale transactions right now
Katerina,
This is an example of myth busting. Your examples are very helpful for many agents doing short sales.
You are absolutely correct, Katerina. If a seller is willing to contribute, a hardship is unnecessary. I think agents should refrain from telling sellers that they need a hardship. They should say they need a bonafide hardship to skate away. I've closed some short sales where the sellers were current on their payments and did not have a hardship. Of course, they made a deal with the bank, though. They didn't walk away without giving something back.
Just got here to read this really great information. I thank you for the post.
Dick and Dixie- Did that help to answer your questions? I got your email and thought I should put the info in a post. Hope it helps. Katerina
Katerina,
I really appreciate your getting into different types of situations you've been in and explaining what has happened. I'll look forward to your next posts on this.
Yes- thanks. I saw this post and said to myself, I bet I might of inspired part that post. Thank you very much.
Yes- thanks. I saw this post and said to myself, I bet I might of inspired part that post. Thank you very much.
Katerina - Thanks for clarifying. It's been so long since I have read or attended short sale training that was not California specific.
By the way. It appears we are hindering the economy and causing banks to get bailouts (at the cost of tax payers) by doing short sales for the wealthy. Talk about being in left field!
Take care and I hope more people discredits you so it encourages you to write more great blogs!Yes, I know it's a selfish stance, but it's all about ME! ;)
Good post. There's too much dis-information out there and a lot written based on personal opinions or bias. It's not our jobs to judge our clients as long as what they ask us to do is legal. I'm tired of listening to the attacks on the "wealthy". Everybody has thier own story and it's not up to us as professionals to judge.