Working a Short Sale in Today’s Environment

Currently, it appears that only 30% of all short sales are successfully closed. 

The banking industry attributes this low success rate to the failure of homeowners and their agents to submit complete documentation and otherwise comply with the short sale approval processes that they have set up, as well as an overload of the system.  (As noted, I believe these are excuses that help cover up the real issue related to servicer compensation.)

However, I believe that there are some practices to work the current system that exists to help improve the odds of success, and have listed them below:

1. 1.  Play by the Rules: Before you can get anywhere with a loan servicer, you do need to get them to look at your short sale request.  This requires that you submit a complete file with, at a minimum. all of the required documentation. (If you don’t, your file will likely be put in the trash, and any chance of negotiating the file or getting someone higher up to look at it will be lost.)  Of course, there are some exceptions, principally relating to loopholes that can potentially be taken advantage of in automated submission systems used by some servicers (e.g., Bank of America and GMAC).
2. Follow Up/ Follow Up/ Follow Up:  After submitting the file, it is recommended that the servicer be contacted to verify the file has been received and complies with lender/servicer requirements.  (Servicers are notorious for “losing” even complete submissions, so this is important.)  Also, frequent follow up on a regular basis is needed to make sure things are moving. 
3. Be Cordial:  You never know when you might get lucky and be assigned a negotiator with a sympathetic ear – one who is willing to help.  It seems to be rare, but it does happen.
4. Find Out Who Owns the Note.  Loan servicers are generally loathe to disclose this information, but it is important.  You may then be able to find out what the policies of the owner are (and are less likely to be misled by the negotiator.)   Also, this information may be useful if you run into a problem.  Escalation to the owner, if that is possible, may finally put you in touch with someone who is knowledgeable, rational and motivated to avoid a foreclosure.  Loan  servicers are required to disclose this to borrowers, but the request needs to be in writing and should be sent by certified mail.
5. Find Out Whether The Foreclosure Process Has Been Initiated.  I have found that the Loss Mitigation and Asset Management (Foreclosure) departments at these institutions do not communicate very well.  See if you can get them to agree to suspend any foreclosure activity while the short sale (or loan modification) negotiations are continuing.  Sometimes they will (but that is not always the case.)  In any event, you need to know this information so that you know how much time you have to get the file approved.
6. Respond in a Timely Matter to All Requests.  If this is not done, the process will likely stall (and your file may wind up on the bottom of the pile or simply be trashed.)
7. Meet with the Appraiser or Agent Doing the Broker Price Opinion.  This is very important.  You want to make sure that they are aware of what is going on in the market and also of any problems with the property, and this is another area where a real estate professional’s services are likely to be more effective. Note that this may be the only opportunity to make sure that the valuation comes in correctly
8. Don’t Cave In to the Negotators Demands.  Sometimes negotiators take a position just to see what the response is.  Other times, they try to mislead to get a better result, threatening to close out the file if their demands aren’t met.  In reality, as fiduciaries, they should normally be submitting the best offer that they have negotiated to the owner of the file (and not closing it out), and many times that does happen.  (The exception will be where the authority to make decisions for the owner has been delegated to them.) Sometimes it may actually be better to have the file closed out since, if there is enough time, the request can be submitted again.  That will likely result that another negotiator being assigned – and you may have better luck with them. 
9. If You Do Run Into Problems, Escalate.  The negotiators that you are likely to deal with initially have been described to me by a loan officer at one of the major banks as “banking center employees” (i.e., clerical staff).  They are underpaid, overworked and generally appear not to be very knowledgeable about the real estate business.  In addition, many of these employees do not seem to care about avoiding foreclosures, attempt to mislead the homeowner and their agent, and, in some cases, actually appear to be vindictive.  However, the servicers ultimately do have a fiduciary obligation to their clients, the owners/investors who are holding the loans.  I believe that when you do go high enough, they recognize that they can no longer ignore what their staff employees are doing – that is, their knowledge of the situation is now on the record.  As a result, I have found that they are more likely to pay attention and act rationally in their client’s best interests.
10. Document that the Offer Submitted is Fair And Likely to Provide A Greater Return than a Foreclosure.  A senior executive (or their staff member) presented with this information will act rationally and forward the file on for consideration, and that can result in a very rapid approval being issued.
11.  Threaten to Go Viral.  If escalation does not work, threatening to post negative comments on the internet and/or contact the media, etc., could be helpful (especially if they are being unreasonable.)  With all the investigations by state attorney generals going (on robo-signing), and at least one lawsuit on the improper handling of defaults, you may be able to hit a nerve and get a more favorable response.
12. Managing the Buyers.  While all of the above is going on, it is necessary to manage the buyers expectations, and keep them updated on a regular basis, to avoid losing them (and that needs to be addressed up front.)  The buyers need to understand that the short sale process can take 6 months or more.

 If the above sounds like  a lot of work, it is.  So if you are not prepared to handle it yourself, it is best to have a trained and knowledgeable  real estate professional handle it for you.  In a short sale, the real estate commission in almost all cases is not charged to the Seller.  (That is, it is structured to be paid from the proceeds of the sale (i.e. before the balance is paid to the owner of the home loan.) 

Have any comments or questions?  Please feel free to leave them below.

The next post on this site will discuss some additional suggestions that I believe would help avoid future meltdowns so that we hopefully won’t have to go through this economic crises again.

 Having financial difficulties and don’t know what to do?  For free advice on your options, visit http://SaveYourSDHome.com.

 Buying a distressed property?  For a free list with pictures, send an email to Arthur@SDHomeQuest.com with information on the location, size and price of the properties that you would be interested in.

 Arthur Chatroo is a Broker-Associate with Realty Experts

 Phone: (858) 775-0098.  Email: Arthur@SDHomeQuest.com

 Arthur Chatroo, Realtor®, CDPE (“Certified Distressed Property Expert”), specializes in helping buyers in the purchase of distressed properties and sellers in financial difficulty with loan modification assistance and short sales in North San Diego County California.

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 Copyright 2010. All Rights Reserved. This is not intended as legal, technical, or tax advice. Please speak with a licensed professional before making any decision. Information is deemed reliable but not guaranteed as of the date of writing. The views expressed here are Arthur Chatroo’s personal views and do not reflect the views of Realty Experts. This information on SanDiegoHomeQuestBlog: is provided as a courtesy to our viewers to help them make informed decisions.