A “Short Sale” is when a home seller sells his home for a lesser amount than what is owed on his mortgage, and the mortgage lender agrees to accept the lesser amount in lieu of a full payoff. By way of example, a Short Sale may be appropriate for a Lodi home seller whose mortgage balance is $250,000 but whose home wouldn’t sell for more than $220,000. Rather than pay the $30,000 difference to the lender at the time of sale, the seller enters into an agreement with the lender by which all sale proceeds are paid to the bank and the deficient balance is forgiven.
Short Sales are a preferable alternative to foreclosure but the process still harms both parties. For one, the seller is penalized with a derogatory tradeline on credit for not fulfilling a mortgage obligation. And, two, the lender is forced to take a loss on a mortgage loan. Versus an executed foreclosure, however, Short Sale damages are relatively limited on both sides. For this reason, Short Sales are sometimes considered “the economical alternative” to default.
The process of getting a Short Sale approved varies from lender-to-lender and can be time-intensive. Home sellers should not go at it alone — speaking with a real estate agent about the proper protocol is usually the best place to start. And sellers should be aware of how a Short Sale on their credit can impact future borrowing. Current Fannie Mae guidelines prevent short-selling homeowners from obtaining new mortgage financing for a period of 3-5 years depending on the loan program applied for.
UPDATE: Video of the Question and Answer Session with the Panel of speakers:
Thanks to everyone who attended our short sale seminar today at the State Theatre in Modesto, CA. Below is a live blog presentation of that seminar and included is a link to the Short Sale Seminar packet that each Realtor received.
10:48 - That’s it folks! Power went out, looks like we will be cutting it short today. Hope you enjoyed and learned some tips to help successfully close your short sales.
10:44 – Q: Should we let our sellers communicate with the bank. A:Ford: I don’t mind. The seller can provide many financial to build there case. I stop the communication when it gets to the negotiator.
Q: What happens if there is PMI on the loan does it make it more difficult to close a short sale? A: Gonzalez: Before Wachovia’s system changed, I had a seller with a PMI and it didn’t close.
Q: Have you completed a short sale that was initially denied? A: Mendoza: Absolutely, you have to negotiate and meet the terms of the bank. Green: Sometimes lenders would say they are closing the file. That’s just a strong-arm tactic. Gonzalez :If you think you have a denial or closed file, DO NOT GIVE UP! Mendoza: Play poker and be tough.
10:36 – Q: How do you tell if a seller is qualified to do a short sale? A: Green: Do they owe more than what they’re worth? Do they have circumstances that have caused a substantial change in income.
10:34 – Q: How do you insure that the listing agent is doing his or her job. A:Gonzalez: You know if you are asking and contacting them and they don’t communicate, it’s most likely they aren’t doing their job.
Q: How to get from receptionist to negotiator. How do you escalate the process? A: Bethany: Can you call too much? No.
10:30 – Q: How are each of you negotiating your 6% commission? A: Rodriguez Mostly 5% and 6% but lenders like Freddie Mac generally take 1% off of the set commission upfront.
10:27 – Q: For banks that are beyond reasonable time, at what point do you ask for a supervisor or someone else to get involved. A:Rodriguez: Contacting a supervisor can kill your deal. Try to communicate effectively with those you can.
10:24 – Q: Are any of you actually prospecting for short sales and what kind of response are you getting from sellers. A: Green I have done some, but it’s not necessary. I actually cold call people in default (which proves for a miserable evening). Best way is through your sphere of influence. Just about everybody knows someone who’s in trouble.
10:22 – Q: Can you give some examples of how you kill your asset managers with kindness? A:Mendoza: Be excited to hear from them. Don’t be monotone. Be eager to work for them. Golden rule – Do unto others, etc. Gonzalez: Giving a gift of even a simple email as a thank you can work wonders.
10:21 – Q: If a sellers is in bankruptcy is it still possible to do a short sale? A:Mendoza: During bankruptcy you are protected from collections. You cant proceed.
10:15 – Q: Do you think the other banks will follow the successful short sale process that Wachovia has adapted? A: Mendoza: Hard to tell. Wachovia is great. Ford: GMAC already had a price, BPO’s and all I had to do was list the property. They are almost treating it like an REO. Also Chase will charge you interest from your commission if you don’t close on time.
10:14 – Paul Harmon is up now.
10:09 – Gonzalez: Sometimes its 19 days to close, sometimes its 6 months to close. Every short sale is different. The most paramount key to successfully closing a short sale is communication. Never forget to do a walk through 5 days and 2 days prior to close to protect your buyer.
10:08 - Gonzalez: Have you ever come in contact with a real estate agent that seemed unprofessional or unethical? Tell them (your clients) you want to be their consultant and adviser for life. Do your due diligence. She also mentions how IMPORTANT the Short Sale Addendum is.
10:03 – Rosa Gonzalez is up now. Explain to your sellers “the actual version” of what a short sale is. Don’t assume because it’s been in the newspaper or that they are web savvy that they will know what it *actually* is. Also educating the buyer is key.
10:01 – Ford: Find a great escrow officer. “When you need, you NEED” Find an escrow officer that is knowledgeable on short sales and create a great partnership.
9:58 – Karol Ford is up speaking about the closing process. Make sure your clients can close on time! Lenders can add fees to take away from your commission if property is not closed on time.
9:56 – Mendoza: Be passionate and sympathetic with seller. Understand what they’re going through. Follow up. That’s it. Short and sweet.
9:54 – Mendoza: Let the lender know what your market conditions are. Be persuasive. Be there new BFF (best friends forever!!!) “Hi! So nice to hear for you today!” Kill them with kindness.
9:52 – Bethany Mendoza is now speaking. Three P’s: Persistent, Persuasive and Passionate. Follow up with your sellers and your buyer’s agent. Set up certain days for your short sales and follow up with all interested parties.
9:50 – Green: We’ve started Alternative2Foreclosure.com – Where short sale offers are updated in real time for our sellers. Keep everyone in proper communication.
9:48 - Green: Sellers choice initiative that is going through the legislature will be addressed in just a bit
9:46 – Green: Do you execute all offers? Do you turn them all in? We take one offer and turn it into the bank. Sometimes bank doesn’t want you to do that. They want all offers, sometimes.
9:44 – Green: Make sure you fill out the Short Sale Addendum to protect yourself. Also, having a website where your clients can see the latest updates on offers for your short sale properties is a time saver.
9:42 – Green: With your loss mitigation rep at the bank and all other parties, “Kill them with Kindness.” Always keep a positive attitude. Most especially with asset managers and asset managers.
9:40 – Green: Top priority when taking a listing: Meet the banks requirements and avoid a foreclosure for your client. Sell the negotiator on the strength of the offer. Sell the client on your ability to sell their home and save them from foreclosure. Keep good communication with your seller.
9:38 - Jeff Green is up now: Receiving and processing short sale offers. Things are changing so things will be different in 6 months. Narrow down your sellers and make sure they are ready and qualified to do a short sale.
9:35 – Rodriguez: Before I put the listing on the market I ask for financial verification documents (tax returns, etc.). I don’t accept an offer unless they have their financial documents. The seller will need these documents and if they are unable to obtain them, your short sale will fall through.
9:33 – Kathy Rodriguez is up: Preparing your client for a short sale. 6 out of 10 times we don’t take a listing because short sale is not an appropriate at the time. Other options are smarter. If you don’t have your client apply for a loan modification, that short sale could be interrupted by the bank.
9:30 – Phil Levin is wrapping up, panelists coming up soon (we hope). First Ben Balsbaugh is up. Introducing panelists.
9:26 – Levin: MLS’s are very restrictive on how you handle the status of these properties. How do you handle these offers when they come in? CAR and Attorneys are not even in agreement. Change status to active short sale contingency when you have an offer.
9:23 – Levin: Use the Short Sale Addendum form from California Association of Realtors. This addendum is important and necessary. Protects your seller, protects your buyer, and protects yourself!
9:22 – Phil Levin: Be careful when counseling sellers. If your clients have legal or tax questions regarding short sales, they should seek appropriate professionals for answers. Don’t give tax or legal advice to your clients!
9:21 – Each one of the agents today are focused, have a plan and work the plan diligently. These agents are successful with foreclosures.
9:20 – Looks like were getting started. Phil Levin, manager at our Modesto Orangeburg office is up speaking. “Over 60% of current inventory is in short sale.”
9:16 -“Knowledge is power!” There were times in real estate where attitude was more important than knowledge..but today compared to a few years ago the important thing is aptitude: What do you know? That’s why we’re here today. That’s why we have ongoing training opportunities.” – Mike Zagaris
9:14 – Mike is discussing some inspirational thoughts with us. “Mental attitudes are contagious”
9:13 – “Our team was the fastest growing and most successful real estate company in the United States.” –Mike Zagaris 167% more transactions from previous year
9:11 – Mike is noting that agents who are present today will receive a Short Sale certification certificate from PMZ Real Estate.
9:06 – Mike is on stage, ready to announce the event. “Good morning everybody! Thanks for everyone coming, it’s a fabulous turn out today!”
8:58 – Just heard from Rosa Gonzalez, a Realtor from PMZ Real Estate. She is alllll ready to head up on stage and school us on short sales.
8:53 – Looks like things are just about ready to get started. Mike Zagaris is here including all the managers at PMZ Real Estate: Katie Ward, Richard Hundley, Paul Harmon, Jon Zagaris, Matt Keenan and Ben Balsbaugh.
8:41am – Hey there! PMZ is here live at the State Theatre in Modesto, CA getting ready to live blog the Q&A session we’re sponsoring to demystify the short sale process and help realtor’s find tips that will help make the closing process quicker and easier! Stay tuned! Things get started at 9am PST.
