Working with Lenders
A short sale requires a significant amount of negotiation with the lender. You should focus your efforts on lenders who have demonstrated a commitment to pushing short sales through the process.
You can ask or research information regarding lenders and their approval process, using the PropertyRadar Community. But beyond that, to build a successful short sale business, you need tenacity, knowledge and a network.
You never graduate from the school of short sales because the rules are changing all the time. You must stay current on new laws and regulations.
One Action Rule
For example, California Civil Code 580e/SB 931 (effective 1/1/11) prohibits banks from pursuing deficiency judgments against sellers on first liens, regardless of whether the seller refinanced or pulled cash out.
In California, once a seller has refinanced their mortgage, whether it is a cash out refinance or simply a refinance for a better interest rate, the loan becomes a recourse loan, meaning the bank can pursue the seller after the short sale for the deficiency unless they state in writing that the debt is settled on the short sale approval.
Build the expertise and contacts necessary for short sale deals
Expertise. Just as you currently know the steps from placing a traditional listing to closing escrow, you must also have a complete command of the short sale process. As you learn you will build a library of the proper forms, templates for letters and agreements, and a checklist to step you through.
Contacts. You should also build your network of supporting individuals. Of course you’ll want to know the individuals in the loan mitigation department of the lenders you choose to work with. You should also develop a relationship with the loan department, because it’s important to keep them in the loop so they know the status of the short sale and avoid foreclosing after the sale! Other supporting players include a tax advisor, a real estate attorney, a bankruptcy attorney and perhaps third-party component servicers handling loss mitigation for a lender.
Tales from the Trenches: Never turn your back on the ocean
On several occasions I have bought a property at auction that had already closed escrow on a short sale. Don’t assume that because the loss mitigation has negotiated the short sale that anybody has told the loan department, because they haven’t.
You and the owner have gone through a considerable struggle to prevent having a foreclosure on the owner’s credit report. Don’t let that work be undone simply because nobody told the loan department what was happening.
In addition, anyone buying a preforeclosure should be aware that the public record notices filed before they purchased will likely result in some disruption for 3-6 months after they close escrow. You should disclose this in the contract with the buyer on the short sale.
Listing the Home
Short sale amendment documents
Contact your local Realtor® Association for the latest documents and disclosures for listing a short sale. Your broker may also have forms specific to your brokerage to insure that you properly disclose all information regarding a short sale.
Set the pricing high enough to allow for negotiation while still being able to meet the agreement negotiated with the lender and allow for regular reduction of price until it is sold.
Harris Real Estate University recommends using the recent sold properties (not active or pending) in the area and deducting ten percent. The lender will order a BPO and the listing agent must be able to explain how they determined the list price of the property. Because many buyers avoid making an offer on short sales, the ten percent reduction is there to entice buyers. A short sale can take considerably longer to close than a traditional sale. You need a buyer that is willing and able to wait for the lender approval.
In some cases the IRS will consider the forgiven debt as income and require income tax be paid on the difference. The seller should get advice from a professional to be prepared for the possibility, as every situation is different. A professional tax preparer can advise the owner about qualifying for any relief under the insolvency rules or the temporary laws known as the Bush Bill.