How to Diagnose a Short Sale

How to Diagnose a Short Sale
To help sellers navigate the difficult world of distressed sales, you must be able to identify and evaluate all of your client’s options. Lori Cox, ABR®, CRB, who instructed a full-day foreclosure seminar Wednesday in Orlando, said that sellers generally have seven options: 1. Refinancing2. Selling and bringing cash to closing to cover the loss. 3. A lender workout. 4. A deed in lieu of foreclosure.5. A short sale6. A foreclosure.7. Simply walking away. “Walking away is never the best option but it might be their only option,” Cox said. Which option is best for your client? To find out, “you have to be a diagnostician and you have to be a technician,” Cox said. To diagnose the situation, work with sellers to answer the following questions: Are they current on their payments? If not, how far behind are they? Sellers who are only one or two payments behind are in the best position to negotiate with a lender.Do they have savings to pay off the loss? If sellers are under water on their mortgage—meaning they owe more than the house is worth—they’ll be able to protect their credit if they can pay off the remainder of the mortgage.Are they facing a hardship? If it’s a temporary hardship, a lender might grant forbearance. If it’s a long-term hardship, the sale could be qualified for a short sale. Being a technician, meanwhile, means helping sellers put together a short-sale package that’ll pass lender scrutiny. “They need more paperwork to get out of the loan than they needed to get into it, and you have to prepare them for that,” Cox said.Educate Buyers, Educate YourselfBuyers who want your help making an offer on a short sale need to fully understand the process—and so do you. Such transactions require lots of work, patience, and paperwork, so it’s important that the buyer’s expectations are realistic. In addition, be sure to set ground rules for how you’ll be paid in the event of a reduced commission, Cox said. One attendee at the session said listing agents in her Connecticut market are specifying a $1 co-op commission on short sales. “That’s why you need to get an exclusive buyer agency agreement,” Cox insisted. “Do you want to be paid $1 for your hard work? I hope not.”Sense Fraud? Steer ClearMortgage fraud hasn't gone away; when working on a distressed-property transaction, use your professional judgement to determine if something fishy is going on, Cox said. In particular, beware of sellers who provided false information to their lender. “If there’s mortgage fraud, that’s not a listing you want to take,” Cox said. “How many of you have received e-mails recently saying, ‘Stated-income loans are back’? There’s still mortgage fraud today, and you don’t want to be part of that.”

Dan Posternock
As seen in REALTOR Magazine 11/07/08

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