I wonder if we have any Short Sale classes around here? Was it your board doing the class? or some other organization? I could definitely use one right now! Just had a gentleman call me today asking if I could help ... the bank is foreclosing on them and he wanted to see if there was anything we could do. So, no problem approaching the client here ... in fact he was the one approaching me.

I also have the same questions as Michaela.  We have a record number of defaults around here, and I think I could help people save their equity (or what is left of it).  Is there a specific person or organization that anyone would recommend for a short sale class?  My perception is that they are tough and that in general, everyone is at the mercy of the bank.

I've had great success with sending them information in the mail on how to get themselves out of foreclosure without having to sell. I give them all the options without a sales pitch and advise them if they need help with any paperwork feel free to contact me.

I've had 4 people in the last 6 months contact me to sell their home out of maybe 100 letters. That is better than farming letters have ever done for me.

Everyone of these people said they called me because they actually felt I wanted to help them instead of try to get them out of their home.

Todd

Todd, how do you identify these people? What kind of options do you present to them?

I too would like to be more up to date on short sales and am looking for classes and contact info as we too are looking at record numbers of foreclosures in the Indianapolis area.

Your local recorder's office should have a list of NOD's that have been filed. You could also contact your favorite title company to see if they offer a list. I took a class on short sales with our local board.

I do have one listing (family member) but know an associate who is trying to specialize in these listings.

My concern is what benefit do we really offer the seller? After talking with several lenders, I am told that a short sale is really looked at like a foreclosure. When it comes down to it, I'm feeling like the only people who benefit from a short sale is the bank and the agents - not a good thing. Any comments?

By the way, negotiating hint:

When listing a short sale, make the commission 1% higher than what is customary for your market. This way when you negotiate with the bank, you might have a better chance of receiving an appropriate commission. Otherwise, you may find yourself working much harder on an escrow for a smaller paycheck. It also attracts the selling agent.

Janet Gaut

Very Confused Here:  

First, Have done several short sales.  None of what I am reading here is computing.  Am not trying to be negative, but I really think somebody is missing the boat here.  Maybe it's just me?????

I thought the basic premise was to get people out of their house so that they could start over with a financial situation that works instead of one that clearly does not?  Seller wins because they end an unworkable situation.  Bank wins because they save cost of foreclosure.  Realtor wins because a house is sold.

Confused by Rob, who is afraid short sale prospects will resent help.   What am I missing here?  The prospect cannot pay, the prospect owes to much to sell, the prospect is in a slow death state.  We can help.  Most short sale clients just want a way out without having a foreclosure on their credit record.  Most have welcomed help.  Most did not know there was a way to get out if the house would not sell for more than they owed.  Only one short seller has ever been angry at me.  I am able to show them that it is the market that determines price and it is not me who is taking their equity.

Confused by Derick:  How are you going to "help people save their equity (or what is left of it)" ???  The very definition of a short sale is that the sale will be SHORT of the payoff amount.  There is no equity to save.

Confused by Todd: How do you get listings by "sending information in the mail on how to get themselves out of foreclosure without having to sell." ???  How do you establish that you wish to "help them instead of try to get them out of their home."  In a short sale, the way I understand it, the only way to help them is to get them out of the house (with debt forgiven)....

Confused by Janet:  How do you get title companies to help you find NOD prospects?  Every time I contact a title company and ask for NOD lists, they tell me that it would be a violation of privacy act for them to tell me about them.  I thought it was a public record ???  

What we offer the seller is a clean slate - and a fresh start.  Without a short sale, they end up being put out, with a foreclosure on their credit, which means it could be years before they can buy a house again.  Until the actual foreclosure, it is just a slow, depressing death for the owner.  

A person with a foreclosure on their credit record is up a creek, in deep do-do, with no paddle, AND NO CANOE.  It is FAR worse than Bankruptcy.  According to my understanding, a person with Foreclosure probably cannot get a home loan of any kind for several years.

Whether pre-forclosure or after foreclosure but before sheriff sale, or even after sheriff sale, if the bank accepts a short sale then the foreclosure is redeemed, removed - because the mortgage is paid off.  

The credit record may reflect a compromise, or settlement, but tha is far better than a foreclosure, and the consumer can still get a home loan if the underlying credit score is ok.

That's what I think I know...  Anybody know different?  

I Really want to know more about this!      

Lonn is correct.  The entire idea of a short sale is to save the seller from foreclosure and the bank from having an REO sale.  The bank agrees to be "shorted" on the mortgage payoff so they don't have to go through the foreclosure expense.

The seller's credit is preserved because nothing adverse happened.

Sometimes the bank will report the settlement to one or all three of the credit agencies and sometimes they won't.

So, there usually is a great incentive for the seller to agree to list the home for sale ASAP unless they believe that their financial situation will change overnight.

Its like your brother owing you $100 and you agree to take $75 and forget it.  You just might not lend to him again, but nobody else knows about the short payback.

Hallmark condition of bank approval will be that seller gets $0 from closing.

Banks don't let seller walk away with cash when the bank is getting less than amount owed.

Nobody ever took cash away from a bank and got paid to do it....

Except the short sale Realtor and the Short Sale Buyer!!!!

Janet is ABSOLUTELY CORRECT about charging an extra percent of commission.

The average short sale is a lot more work.  Seller cannot make a dime anyway...  so you are not shorting the seller.  

Bank may try to knock that commission down later anyway, especially if you double dip the sale....  but you can fight it.  

Tell 'em "Fine, you hire a Realtor and see if you can sell it in less than 30 days for more than I just got somebody to offer"...

The seller will also get a 1099C from they lender if they do a short sale. A 1099C is Cancellation of Debt, the difference of what they owed minus what the house sold for. It is taxable income to the seller.. Lonn is correct in his explanation on Short Sales. I do alot of short sales and they are ALOT more work. You have to deal with the lenders and get their approval on everything for it to close..

Dont' forget -- that if the bank agrees to a short sale - they can send you a 1099  for the difference between what you owed them and what they accepted.  How many people in this situation can afford to take on a tax liability?

These people really need to talk to an attorney about filing bankruptcy before they decide to do anything.

Gail, I guess you and I had the same thought at the same time.

I love the input here. Lonn, when I initially looked into short sales, I thought that the short sale was definitely a better credit situation for the seller than a foreclosure. After speaking to several lenders in my area, I am told that the two are looked at by lenders in the same way and that the seller would not be able to purchase a home for at least three years. In regard to the 1099, won't the seller have the same tax implications if he forecloses? This is new territory for me. Logic tells me that a short sale would be a better situation for the bank and for the seller, but reality does not always make sense. Any thoughts from experience?

Also, the NOD is a recorded document thus public record. Title companies here in No. California offer lists. I understand that there are also web sites that offer a daily service.

Janet Gaut

Rhonda - Great minds think alike!

I found that too often sellers (and agents) are unaware that it can (will) happen.  If they are trying to save the house, they should talk to an attorney about Chapter 13 backruptcy, which allows for a re-organization of debt to be paid off over 5 years (or less), if that fails because they don't meet the income requirement, there is always Chapter 7.

With a bankruptcy on your record, you can get a FHA loan in 2 years and a conventional in 4.  However, I just had a client that was a year out of bankruptcy (his FICO is now 720), and was able to find a lender (no foreclosure on his record).

Janet -

You ask:  In regard to the 1099, won't the seller have the same tax implications if he forecloses?

I am told by a local foreclosure expert, that it is one thing if that bank decides to take a loss, but another if you ask that too!

Oops - typo - should say:  "but another if you ask them too!"

Another angle.  In a lot of situations, a realtor can be a huge benefit when the borrower receives a notice of default or a lis pendens is placed on the property - and it is not a short sale situation.

A lot of times people will have equity but since they are facing foreclosure they stall and don't know what to do so they let the foreclosure run it's course or talk to a bankruptcy attorney - who you don't have to guess what advice that attorney will give.

Always advise clients that they own the house until midnight the day prior to the law day and are legally entitled to sell their house/refinance/loan workout until that day provided they are not in a short sale situation which will require lender approval.  

I have also seen "cash for keys" wherein a lender will offer up to $2,000 cash in hand when homeowners are cooperative with the foreclosing lender and vacate the property in good condition and in a timely manner.

There is a lot a realtor can do to actually help distressed borrowers, whether it is a short sale or not.  One of the best things we can do to help is explain all options and make homeowners aware of all the sharks that will present themselves as "investors" once notice of their default is made public.  This is going to be a growing discussion with the national rates of defaults going through the proverbial roof in the next couple of years.

Caveat:  Don't go near a foreclosure/short sale unless you know what you're talking about.  There is no right way to do the wrong thing.

can the bank still approve a short sale if the foreclosure has already taken place and the owner has a move out date?

Dan -

You said: A lot of times people will have equity but since they are facing foreclosure they stall and don't know what to do so they let the foreclosure run it's course or talk to a bankruptcy attorney - who you don't have to guess what advice that attorney will give.

Depending on how much equity they have, if they file bankrupty, and the house sells close to market price, the seller can keep up to $18,000 of that equity, the rest is used to pay off the mortgage and other debt.

I'm no fan of attorneys, but I think that anyone facing a foreclosure should be advised of all the options and as a Realtor, it is not within my area of expertise to give legal advise.

I agree with you here:  "Caveat:  Don't go near a foreclosure/short sale unless you know what you're talking about.  There is no right way to do the wrong thing."

Michaela -

Yes, after the date of the sale, the seller has a six month redemption period, during which time they can come up with the money to "redeem" the house.  During this time, they can live in the house and attempt to sell it as the sellers name is still on the title.  The bank may or may not accept a short sale.

This may sound like a stupid question, however, I am a new Broker and i've been told that short sales aren't a good idea, please enlighten me on how this will benefit me as a Broker trying to get investors to work with me. And what is a NOD list? I'm interested im learning everything that will help my new company to become financial productive.

Janice,

I'd say you were told short sales aren't a good idea because they are a lot of work and you never know what the outcome may be.

However, I do see a clear benefit ... a whole bunch actually:

1. you get a listing ... and one that may actually sell since the bank is to allow for a lower value

2. you get a commission selling the listing

3. you may attract investors simply because they know you have listings that may be just what they need ... they don't want at market or overpriced homes that are listed ... they are looking for good deals, which is something you may offer them ... of course, you need to make sure what you're doing so you don't get in trouble violating any laws (dual agency, etc.)

anyone, correct me if I'm wrong?

Good thread. I have two things to add:

1) Laws vary by state; some states forgive remaining debt (deficiency judgments), most do not. Know which your state is, and make sure you strongly suggest these folks get legal and accounting advice in addition to yours.

2) We all need to offer auctions as a tool in our toolbox. Partner up with a good one and your sellers will love you for it, plus more buyers will contact and sign up with you. NAR has been telling us this for years.

The public looks to us to be experts -- we should be preparing for the market we are in now so that we can actually help people in the bleak market time ahead. It's our job, let's take it seriously and deliver results without judgment.

FYI - Read Inman News -

They posted an article on Monday, April 9th "Workouts could soften impact of subprime lending woes" Part 1: The new housing venacular.

And today:  "So you want to get into short sales?  Part 2: The new housing venacular.

Different states also have different laws regarding redemption, and bankruptcy laws changed last fall.  I'd recommend always referring the prospect to his attorney for their best options and getting a signature from them that they understand your recommendation before you list their homes.  I don't know about all of your states, but mine frowns on real estate agents practicing law without a license.  Good recommendation above about accounting/tax advice, too.

With regard to approaches, I like Todd's approach a lot.  Sometimes the client just wants to know all his options, and then he will decide for himself that selling prior to foreclosure is the best one.  Who will he list  with?  The guy who answered his questions instead of pressuring him to list.  Even if he manages to work something out with the bank and you don't get a listing, how valuable is a happy client who didn't lose his house because you helped?  Priceless!

I've sent many a letter to NOD recipients, with virtually no result.  I suspect they all get dozens of letters from both agents who want to list their homes and from investors.  I wonder how many they read.  If I ever decide to send any again, I'll use Todd's approach.

But as I watch the progress of the auction notifications and eventual sales, it's clear to me that the person who is there with the solution at the right time is the one who saves the day, whether it's an agent who lists the house early enough to sell it prior to foreclosure, or the investor who bails the owner out of foreclosure at the last minute.   A lot has to do with the personality and mindset of the owner.

For those who can't get NOD lists from their title companies, check to see whether your county recorder's office offers a subscription to their data online.  Mine does, at a mere $25 a month, and I can see and run reports on everything that's recorded--including NODs.  They are indeed public record.

Cheri

In order to File IRS Form 982 one must be in bankruptcy and have that debt as being discharged. In my previous life, I worked as an Accountant. I have been outof that for some time now, so the laws/rules may have changed but they  need to seek advice from an attorney before doing this..

Also note: Lenders will almost never approve a short sale if the seller has refinanced and pulled equity out of the home in the past 12 months.

And a caveat: Sellers are going to increasingly try to get us to participate in short sales as a means of lowering their indebtedness and/or payments. For example, we might end up presenting a short offer from the seller's girlfriend or fiance (their relationship will probably not be revealed to us). As the public learns that short sales are an option, me must be careful to not be duped into fraudulent practices that can cost us our livelihood.

Rob -

It is my understanding that the governmnet wants their money.  FYI - they do make payment arrangements!

Sellers facing a short-sale or foreclosure have far more financial problems then we realize.  It is important that we advise them to seek the counsel of an attorney and tax advisor for their situation before we agree to "help" them.

One more thing -

If you are working with a buyer who is interested in a home that needs bank approval, they need to be patient (and not many buyers are).  A home in my area took 2 months before the bank agreed.  If the bank received other offers that were better, they could have waited a long time for nothing.

This is a great thread!  A short sale can actually be cheaper for the lender than a foreclosure which I had a hard time believing until I read some info about what a foreclosure costs!

All great information but I'd like to make a comment about the psychology of it for the owner.  This is indeed an area where you need to be understanding and not take personally any comments or reactions you get from an owner.  No matter what the reason for the financial difficulty, that owner is feeling a whole stew of emotions.  They probably aren't sleeping well worrying about the future.  When they do sleep, they are having nightmares about being homeless. They are on edge. They are feeling guilt and shame at even being in this situation.  They are feeling anger at themselves and probably at their lender.  They might be hiding their situation from family members and friends and feeling guilty about that too. Maybe they did try to work something out with the lender and the lender turned them down flat and were unsympathetic. Maybe there is a medical disability or employment issue that they are dealing with in addition to the potential foreclosure. You say you don't understand why they are angry but these are their feelings and when they are mired in these feelings, they don't see the light at the end of the tunnel that you might be offering them.  This is their home.  It is embarassing. We all know that even in the best of circumstances, even when they are willingly leaving their home, it is stressful ....multiply that by 10 and you will understand what they are going thru.  

Yes, they should speak with an attorney.  I don't know about other places, but most bankruptcy attorneys here will give someone about 1/2 an hour at no charge to help them assess where they stand and what should be done.

Rob:

I think I understand your situation better now.

Your seller prospect feels taken advantage of by EVERYBODY, apparently. People under pressure can get that way.  

In his situation, the NOD is to the supposed "investors" as blood in the water is to "sharks" that want to take advantage of the situation.  

Best that you present to the seller that you are not trying to buy the house for a steal price.  Offer to help him keep the upper hand...  Offer him some dignity and control.  HE might want that more than money right now.  If it is a short sale he won't get any money, but can still get out with his dignity, and do so under his own steam, which helps save a lot of unnecessary shame...  

Offer help to stay in control and a new chapter, a fresh start, with a helpful hand along the way....  

Works for me...

There is a lot of great insight here. I still wonder at the benefit to the seller.  Does anyone know the real difference in the affect that a short sale has on a sellers credit verses a foreclosure?

Janet Gaut

Janey,

 You ask what the benefit to the seller is?  Well that depends.  The definition of a short sale is that the lender is accepting a payoff of less than they are owed.  That is is.  Generally those that have a short sale are also in the first stages of foreclosure with a NOD filed.  However, this is not a requirement.  

If the seller has made their payments and continues to make their payments on time then their credit is not affected by the short sale.  It will show that they paid as agreed.  If there are any adverse statements/affects on the credit report, then the seller should fight it and have it removed.

 Just because you need to sell your home for less than you owe does not necessarily mean you cannot or are not making your payments.  What happens when you work decides you need to move out of state but can't sell your house for what you owe due to changing market conditions.  You could afford to pay the mortgage, you are just being forced to move at a bad time.  You could still do a short-sale.  The question is of course a matter of financial ability.  The bank will generally not accept a short-sale if you can afford to pay the amount.  However, foreclosure is not a requirement, just an incentive for the bank.

 With that said, it is not the short-sale that affects the seller's credit.  It is the late payments on the mortgage.  If a seller is late on their payments there is really nothing that can be done to fix that.  They must find a way to make the payments until the home is sold to mitigage the credit damage.  That includes avoiding foreclosure.  This is where many of the "we buy houses" investors come in.  They buy the home for less than market.  The sellers get a quick sell to avoid further credit damage, avoid foreclosure and can move on with the next chapter in thier lives.  

 I know, many of you think that "we buy houses" investors are the scum of the earth and want nothing but to make buck or a thousand from the unfortunate situations of homeowners. Yes, there are those out there.  However, not all, in fact most are not like that.  They are just people that use investing in homes to make a living.  They must buy a home below market so that they can then sell it at market and make a profit.  Careful, I jus said a six letter word.  Profit.  How dare they make a profit.  Remember, you wouldn't work for a break-even amount to sell a house either.  That is a profit.  Everyone must make a profit on their hard-work or it isn't worth doing.  As long as everything is done above the table and without malice and their is a meeting of the minds, then great.

 As for the comment about sellers thinking everyone is after their equity?  There is no equity in the home.  That is why there is a short-sale.  If there is equity, no bank in their right mind would agree to a short-sale.

A person with late mortgage payments might be eligible for a new mortgage right away, but only subprime for the first couple of years -- that is, if subprime still exists. Most Alt-A loans will allow it after 3 or 4 years. Conventional loans are usually OK after 4 years out.

If the short sale results in a deficiency judgment ruling against the seller, it can be problematic to their ability to get new financing for 7 years, maybe ten. A foreclosure haunts them for ten years.

Here's the kicker -- most lenders will not consider a short sale contract from a seller that is current in their payments. They have to miss a few to convince their lender that they cannot afford the loan. As agents, we must be careful to NEVER advise them to skip payments to achieve the short sale, even though it appears to be the "best" solution.

BTW, a piece on today's DSNews.com from the Colorado Foreclosure Hotline says that 75% of the folks in mortgage default they counsel have conventional financing (ie NOT subprime).

Here is a link to learn a little about the foreclosure laws in your state: http://www.afscanhelp.com/foreclosure-laws.cfm

Use this as a resource for yourself. Be careful giving this link to clients. They could possibly get directed away from you as their source of help and information.

Check out the rest of their site for other information on how to help people avoid foreclosure.

BTW, I did a loan a few months ago for a client who had a prior BK and foreclosure - both within the last few years.

In my blog post about a month ago titled "The Future Isn't What it Used to Be", I made the point that foreclosure/short-sales/workouts are going to be a big part of our future.  

What you will see in the coming months (and years) are much more liberal workout deals done with banks because lenders will realize that they simply cannot foreclosure on every single homeowner that will be in default once this tidal wave hits full steam.

As evidenced by the popularity of this thread, many of us have already gotten involved, and what's good here is that we are seeking answers.  Answers to questions that if we haven't been asked yet, we soon will be.

Don't think for a minute this is temporary problem.  It is estimated that 2008 will be the worst year ever for foreclosures with the bulk of boutique ARM loans hitting new caps.  With property values holding steady and declining in some markets, combined with everyone's non-housing expenses continuing to skyrocket, unless there are some creative options given to homeowners, loss mitigation could become a large area of our real estate practices.

Knowing the proper way to consult with clients faced with this distress will not only improve our relationships in the community, but will offer us the peace of mind to know that we are maintaining our fiduciary responsibility to each client, no matter what their financial situation is.

Agents viewed as opportunists in the midst of other's troubles will garner the reputation they deserve.

Hello people of short sale interest,

You are in luck.  Last night I attended a very good presentation on exactly, "Short Sales."  It was 2 hour presentation at a local downtown hotel.  Today like with all such free seminars I received a call from one of the staff from the seminar wanting to know what I thought and if I wanted to learn all the necessary secrets to succeed doing short sales.  Being short of funds and recovering from a disability, I had to only wish I could participate.  I did mention to the gentleman that some of my colleages were expressing the need to find out about such a program.  He said good if you can forward some names maybe he would throw a few dollars my way if they did anything with him.  The two hours I experienced was of an agressive team approach at conquering the short sale frontier.  It probably seems as good as could be expected without going broke for something one knows very little about.  So if you would like to be put in contact with this National team please email your contact information and I will pass it along. If you do one or more it would probably be worth it and you would have some agressive knowledge.

In case you haven't seen it yet - Inman News - Part 3 today "Potential roadblocks and common mistakes with short sales":

http://www.inman.com/inmannews.aspx?ID=62810

Short sales are not for amateurs regardless if you are an investor or an agent. If something goes wrong the only one left holding the bag is the seller.

Be careful. It's not as easy as some of the above posts make it sound. You will be spending more time on this sale vs a regualr transaction.