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Short sales, a product that changes in the blink of an eye- cheat sheet



The other day one of my Realtor® friends called me and asked me to tell her everything she needed to know about the government’s HAFA short sale program in 60 seconds or less. Wow! Was that ever a challenge? Actually, trying to keep any information-sharing conversation on real estate and distressed properties to 60 seconds or less is practically impossible.

That being said, when I completed the conversation, I was reminded of a blog post I wrote right here on Agent Genius a few months ago entitled It’s Important to Know All Things Real Estate if That’s What You Sell. Anyone working in the distressed property market needs to be thoroughly knowledgeable in that real estate niche.

Short Sale Cheat Sheet

So, if you endeavor to take short sale listings, in addition to being able to successfully conduct short sale negotiations and keep a pretty little short sale file, you ought to familiarize yourself with all of the following:

  1. HAFA. HAFA is the government’s Home Affordable Foreclosure Alternatives Program. Read Supplemental Directive 09-09. Learn how the major lending institutions with participating investors are processing their HAFA short sales.
  2. Foreclosure Process. Know your state’s foreclosure process and time frames better then you know the back of your hand. If you are taking a short sale listing, you need to educate the borrower on the foreclosure process and explain to the borrower how close (or far) he or she may be from the foreclosure sale.
  3. Local and Federal Laws Affecting the Distressed Property Market. Do you live in a state with judicial or non-judicial foreclosure? Does your state have any anti-deficiency bills on the table? What about any foreclosure moratoria? Have you read the bills? Do you know if they have or will be signed into law?
  4. Tax Consequences. While Realtors® should never, ever provide advice which comes from out of their area of expertise (such as tax or legal advice), are you familiar with the Mortgage Debt Relief Act of 2007? Do you understand how it impacts short sale sellers?
  5. Major Players. Have you worked with the major lending institutions and successfully processed short sales before? Do you know how to use Equator? Do you know that Chase Bank has its own short sale application package? Do you know that Wachovia has a fast track short sale program and in certain cities you can get your approvals in less than two weeks (sometimes as quickly as three days)?

When you offer your services as a short sale listing agent or if you’ve selected short sales as your niche, you really want to be sure that you have familiarity with your product. This is a complicated product because the rules and policies are changing all the time. It’s not like new models of automobiles that are released once a year. New policies and procedures change weekly, and it is important to read everything you can so that you are able to provide the best possible service to your clients.

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. Sheila Rasak

    August 30, 2010 at 11:54 am

    In short, short sales are never easy and almost always complicated. Agents who decide to take them on need to be above average and well prepared.

    I’m often left scratching my head when an agent takes on a short sale with little or no experience or education on the matter.

    The consumer should be aware of many things when deciding on loan modifications vs. short sale vs. foreclosure…first and foremost the homeowner has rights as long as they maintain an ownership interest. That being said, I’ve witnessed countless homeowner’s who attempt loan modifications only to be denied with a rapid foreclosure on their home. I feel it’s wise to be in the driver’s seat and attempt the loan modification while initiating a short sale; one or the other can be dropped at any time during the process. Another important factor when avoiding foreclosure is carefully selecting a Realtor with experience along with an office located in close proximity to the property to initiate the short sale.

    In my opinion, the best way for a distressed homeowner to find an area Realtor who can navigate these murky waters would be to Google keywords like “avoiding foreclosure” along with the city that their property is located in.

  2. Fred Griffin

    August 30, 2010 at 1:05 pm

    Nice succinct post, Melissa.

    Sheila commented: “I’m often left scratching my head when an agent takes on a short sale with little or no experience or education on the matter.” Roger that! I refer out Short Sales to other Brokers or Agents who Specialize in that area.

    I do suggest to Short Salers (or is it Short Sellers?) that they consult with an Attorney or CPA regarding possible tax consequences or deficiency judgments after the fact.

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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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