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Short sales – recognizing seller motivation

Short SalesThis is a follow up to my article from last week in which I reviewed the definition of a short sale and addressed the issue of multiple lien holders and short sales. While all of that may be very elementary for many readers, I wrote that post after receiving multiple questions on the same day from agents throughout the United States about the basics.

And then, I got a few more questions in my inbox…

Once you have identified that the subject property is a short sale (that the seller owes more to the lender or lenders than the property is worth), there are some other issues on the table that need to be dealt with at the very beginning of the short sale process in order to see the light at the end of the tunnel–the short sale closing.

It is common knowledge that the short sale transaction is riddled with problems. Many times junior and senior lien holders cannot agree or are non-responsive, and other times buyers get impatient during the short sale process and walk away midstream. Another problem, believe it or not, is a seller (or borrower) who lacks motivation.

A seller who wants to sell in a short sale transaction needs to understand the process, and needs to be certain that he (or she) is ready to move on. One common problem that occurs is that sellers suddenly decide that they want to attempt a loan modification after the short sale is well on its way to completion. The question of whether a seller would like to participate in a loan modification should be identified before the short sale process has begun. Of course, some sellers are unemployed so a loan modification may not be an option. But, in other cases, it may be best to assure that the issue of whether the seller is remotely interested in a loan modification is addressed prior to taking the listing.

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Another key issue which relates to seller motivation is with regard to the paperwork requested by the bank. The mortgage lenders request quite a bit of paperwork. If the seller hems and haws about providing paperwork (such as bank statements, tax returns and pay stubs), it is going to be extremely difficult to obtain a short sale approval. Just as your own real estate transaction file needs to be complete and fully compliant, the short sale file at the bank needs to meet those standards as well. If sellers do not want to provide the necessary paperwork, it may be nearly impossible to obtain short sale approval.

Not everything is free.

Lately, I have seen a lot of advertisements where agents are advertising their short sale services at no cost to seller. The advertisement may state that the seller can short sale their home without paying a penny. While that is frequently the case, it is not alway true. Sellers need to be provided with a proper education on the short sale process at the beginning of the transaction or prior to taking the listing. For example, there are certain fees associated with the transaction which the bank may not pay, but must be paid in order to close . Many banks will not pay Homeowner’s Association Fees including missing payments. So, if a seller abandons payments to the HOA, the seller needs to be advised that s/he may need to square up with the HOA prior to close of escrow.

Sellers may also need to bring some cash to the closing table. In many cases, this is not true. But, sellers need to be reminded that the short sale is a settlement of debt. And, if the banks loss is significant, it may make sense to bring a couple of grand to the table in order to obtain forgiveness of an 100k loss.

Each situation is unique and sellers should always consult with a qualified attorney and accountant. That being said, it is important for the listing agent to qualify the seller and make sure that the seller is motivated and interested in the short sale transaction as a realistic way to avoid foreclosure. Otherwise, the listing may never be a closing and you will not see the light at the end of that tunnel.

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Written By

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.

18 Comments

18 Comments

  1. Sheila Rasak

    October 5, 2010 at 8:43 am

    Another excellent and informative piece from AG! I have to add that on the other side of the bank may not pay the homeowner’s fees, is they may. Same with property taxes, insurance, etc.

    It’s been my fortunate experience to have a meeting of the minds with the buying side of my transacations so that they are fully prepared to step in in the event that the lender is unwilling to add additional funds to the transacation. I tend to address the issues, once uncovered, with the statement that the bank may or may not cover these fees and that the seller (typically) simply cannot come up with the funds. We can’t forget that your average short sale situation is a result of a proven financial hardship.

    There are many hurdles to jump when working through a short sale. All in all I find that short sales are worthwhile as long as there’s a spirit of common cooperation and respect.

  2. Kevin the 203k loan guy

    October 6, 2010 at 1:21 am

    Good article. Another thing that is happening is that if the homeowner(s) have been turned down for a mod, the lender may give up on the homeowner(s),and sell their loan to a private investor for $.30 on the dollar. The private investor will want a quick turn on their investment and advise the homeowner to sell or lose their home to foreclosure. It’s currently happening to a relative of mine and while they are trying to sell their home via a shortsale the investor is moving quickly with no sign of giving them additional time to close the shortsale.

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