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Realtor® or Detective? When Listing Short Sales, Be Both!



A Little Recon Work Goes a Long Way

Realtor Is Detective when Listing Short SalesI’ve had quite a lot of experience with short sales throughout the nation, and I’ve closed tons and tons of ‘em in California (where I work and reside). One thing that I’ve observed and blogged about before is the importance of pre-qualifying the property and the seller at the very beginning of the short sale process. Pre-qualification is crucial to a successful closing.

In keeping with that theme, today I am going to advise you about how to do just that: how to be a better detective than Maxwell Smart or Inspector Clouseau, and how to sniff out clues as to whether your short sale listing is going to be smooth sailing or a sinking ship.

When you get a call from a potential seller in financial distress, listen intently and take down some key information: 1) What is the name of the person who has called you? 2) What is the property address?  3) How many mortgage loans are there on the property in question?

No doubt you have set an appointment to meet this disheartened individual within the next few days. Now, before that appointment, it’s time to do a little bit of detective work. You are about to go on a reconnaissance mission, per se.

The first thing you need to do is obtain some sort of property profile or preliminary title report.

Some agents may be able to access property profiles through their local MLS; others may have access to title company websites. Then, once you have the information at hand, you need to read carefully. (Don’t just throw the paperwork in the file.)

Is the name of the individual who called you the same person whose name is on the title report as the rightful owner of the property? What other names are listed on the title report or property profile? In a short sale, you will need to collect authorization, financial information, and other necessary items from all of the individuals on the title report. If Uncle called you about the short sale and Grandma (the owner) is in Europe for three years, you are still going to have to work with Grandma. So, this means that you may have some upcoming challenges.

The second item to review on the property profile or preliminary title report is the number of liens that currently exist against the property.

Is it just as owner stated in your phone conversation, or are there also other institutional and non-institutional liens currently on the title report? The first lien holder will usually pay junior lien holders (if they are banks) a little bit of money to release their liens. But, if there are non-institutional liens against the property, you are going to have to speak with the seller to see whether s/he will be willing to participate in obtaining the release of those liens. A significant number of liens would be your second clue that you have some additional work cut out for you.

A third item to review on the property profile or preliminary title report is whether some sort of pre-foreclosure proceedings (such as a Notice of Default) have been filed against the property.

Each state has different foreclosure laws and time frames, and it is important to be familiar with the time frames in your state. If pre-foreclosure proceedings are listed on the preliminary title report, check the date that these proceedings were recorded. Was it yesterday? Was it three months ago? Know that if it was three months ago, you do not have much time before the actual foreclosure. This may be your third clue that this short sale transaction may not be smooth sailing.

None of the advice I have provided here is rocket science. Truth be told, I was never very good at science in school. However, this is the level of detail required to pre-qualify a short sale seller and a short sale transaction. Paying attention to clues such as these will help to protect the seller and to assure that you will see a successful short sale closing in your future!

Melissa Zavala is the Broker/Owner of Broadpoint Properties and Head Honcho of Short Sale Expeditor®, and Chief Executive Officer of Transaction 911. Before landing in real estate, she had careers in education and publishing. Most recently, she has been able to use her teaching and organizational skills while traveling the world over—dispelling myths about the distressed property market, engaging and motivating real estate agents, and sharing her passion for real estate. When she isn’t speaking or writing, Melissa enjoys practicing yoga, walking the dog, and vacationing at beach resorts.

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  1. Justin Boland

    February 2, 2010 at 3:58 pm

    Do you think any steps could be taken at the regulatory level to make this process more automated? There’s been a LOT of media noise lately about the demand for short sales and the difficulty in getting banks to approve…hopefully enough noise to make this a political issue when the next round of Case-Shiller losses comes in.

    It seems like there’s a clear benefit to be gained from streamlining the process on a Federal level, but I’m also sure there’s a ton of unintended consequences for a change like that.

  2. Doug Francis

    February 2, 2010 at 5:42 pm

    Being a good detective is an excellent suggestion for getting accurate information about any pre-foreclosure proceedings. I guess it wouldn’t make any sense to take the listing once you found out that little detail.

    I’ll sign up for the “Columbo School of Real Estate” class on “Legal Prospect Reconnaissance”.

  3. Bruce Dietz

    February 2, 2010 at 8:26 pm

    Great information! It is imperative to know the specific details of each short sale in order to provide the best opportunity to sell your client;s property before foreclosure.

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Disputing a property’s value in a short sale: turn a no into a go

During a short sale, there may be various obstacles, with misaligned property values ranking near the top, but it doesn’t have to be a dealbreaker!



magic eight ball

magic eight ball

It’s about getting your way

Were you on the debate team in high school? Were you really effective at convincing your parent or guardian to let you do things that you shouldn’t have been doing? How are your objection-handling skills? Can you flip a no into a go?

When working on short sales, there is one aspect of the process that may require those excellent negotiation or debate skills: disputing the property value. In a short sale, the short sale lender sends an appraiser or broker to the property and this individual conducts a Broker Price Opinion or an appraisal, using special forms provided by the short sale lender.

After this individual completes the Broker Price Opinion or the appraisal, he or she will return it to the short sale lender. Shortly thereafter, the short sale lender will be ready to talk about the purchase price. Will the lender accept the offer on the table or is the lender looking for more? If the lender is seeking an offer for a lot more than the one on the table, mentally prepare for the fact that you will need to conduct a value dispute.

Value Dispute Process

While each of the different short sale lenders (including Fannie Mae) has their own policies and procedures for value dispute, all these procedures have some things in common. Follow the steps below in order to conduct an effective value dispute.

  1. Inquire about forms. Ask your short sale lender if there are specific forms that you need to complete in order to conduct a value dispute. Obtain those forms if necessary.
  2. Gather information. Your goal is to convince the lender to accept the buyer’s offer, so you need to demonstrate that your offer is in line with the value of the property. Collect data that proves this point, such as reports from the MLS, Trulia, Zillow, or your local title company.
  3. Take photos. If there are parts of the property that are substandard and possibly were not revealed to the lender by the individual conducting the BPO, take photos of those items. Perhaps the kitchen has no flooring, or there is a 40-year old roof. Take photos to demonstrate these defects.
  4. Obtain bids. For any defects on the property, obtain a minimum of two bids from licensed contractors. For example, obtain two bids from roofers or structural engineers if necessary
  5. Write a report. Think back to high school English class if necessary. Write a short essay that references your information, photos, and bids, and explains how these items support your buyer’s value. This is not something that you whip up in five minutes. Spend time preparing a compelling appeal.

It is entirely possible that some lenders will not be particularly open-minded when it comes to valuation dispute. However, more times than not, an effective value dispute leads to short sale approval.

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Short sale standoffs: how to avoid getting hit

The short sale process can feel a lot like a wild west standoff, but there are ways to come out victorious, so let’s talk about those methods:



short sales standoff

short sales standoff

What is a short sale standoff?

If you are a short sale listing agent, a short sale processor, or a short sale negotiator then you probably already know about the short sale standoff. That’s when you are processing a short sale with more than one lien holder and neither will agree to the terms offered by the other. Or… better yet, each one will not move any further in the short sale process until they see the short sale approval letter from the other lien holder.

Scenario #1 – You are processing a short sale with two different mortgage-servicing companies. Bank 1 employees tell you that they will proceed with the short sale, and they will offer Bank 2 a certain amount to release their lien. You call Bank 2 and tell them the good news. Unfortunately, the folks at Bank 2 want more money. If Bank 1 and Bank 2 do not agree, then you are in a standoff.

Scenario #2 – You are processing a short sale with two different mortgage-servicing companies. Bank 1 employees tell you that they cannot generate your approval letter until you present them with the approval letter from Bank 2. Bank 2 employees tell you the exact same thing. Clearly, in this situation, you are in a standoff.

How to Avoid the Standoff

If you are in the middle of a standoff, then you are likely very frustrated. You’ve gotten pretty far in the short sale process and you are likely receiving lots of pressure from all of the parties to the transaction. And, the lenders are not helping much by creating the standoff.

Here are some ideas for how to get out of the situation:

  • Go back to the first lien holder and ask them if they are willing to give the second lien holder more money.
  • Go to the second lien holder and tell them that the first lien holder has insisted on a maximum amount and see if they will budge.
  • If no one will budge, find out why. Is this a Fannie Mae or Freddie Mac loan? If so, they have a maximum that they allow the second. And, if you alert the second of that information, they may become more compliant.
  • Worst case: someone will have to pay the difference. Depending on the laws in your state, it could be the buyer, the seller, or the agents (yuck). No matter what, make sure that this contribution is disclosed to all parties and appears on the short sale settlement statement at closing.
  • In Scenario #2, someone’s got to give in. Try explaining to both sides where you are and see if one will agree to generate their approval letter. If not, follow the tips provided in this Agent Genius article and take your complaint to the streets.

One thing about short sales is that the problems that arise can be difficult to resolve merely because of the number of parties involved—and all from remote locations. Imagine how much easier this would be if all parties sat at the same table and broke bread? If we all sat at the same table, then we wouldn’t need armor in order to avoid the flying bullets from the short sale standoff.

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Short sale approval letters don’t arrive in the blink of an eye

Short sale approval letters may look like they’ve been obtained simply by experts, but it takes time and doesn’t just happen with luck.



short sales

short sale approval

Short sale approval: getting prepared, making it happen

People always ask me how it is that I obtain short sale approval letters with such ease. The truth is, that while I have more short sale processing and negotiating experience than most agents and brokers, I don’t just blink my eyes like Jeannie and make those short sale approval letters appear. I often sweat it, just like everyone else.

Despite the fact that I do not have magical powers, I do have something else on my side—education. One of the most important things than can lead to short sale success for any and all agents is education.

Experience dictates that agents that learn about the short sale process
have increased short sale closings.

Short sale education opportunities abound

There are many ways to become educated about the short sale process and make getting short sale approval letters look easy to obtain. These include:

  • Classes at your local board of Realtors®
  • Free short sale webinars and workshops
  • The short sale or foreclosure specialist designations

As the distressed property arena grows and changes, it is important to always stay abreast of policy changes that may impact how you do your job and how you process any short sale that lands on your plate.

The most important thing to do is to read, read, read. Follow short sale specialists and those who blog about short sales on AGBeat, Google+, facebook, and twitter. Set up a Google Alert for the term ‘short sale’ and you will receive Google’s top short sale picks daily in your email inbox. Visit mortgagor websites to read up on their specific policies and procedures.

Don’t take on too much

And, when you get a call from a prospective short sale seller, make sure that you don’t bit off more than you can chew. Agents in most of America right now are clamoring for listings since we are in the midst of a listing shortage. But, if you are going to take on a short sale, be sure that it is a deal that you can close. And, if you have your doubts, why not partner up with a local agent that can mentor your and assist you in getting the job done? After all, half a commission check is better than none!

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