Our market here in Portland has seen a significant increase in the number of “short sale” listings on the market.  What exactly is a “short sale”?  A short sale, very simply put, is when a homeowner is selling their home for less than they owe on the mortgage(s).  It is different from a foreclosure, or REO home in that the seller is still on title, still retains possession, and all his or her liens are still attached to the property.  An REO property has already been foreclosed upon and is actually owned by the bank and has taken possession. There seems to be a general misconception in the public that short sales occur because the homeowners were irresponsible, and maybe shouldn’t have even bought in the first place. 

But really, lets cut some slack here.  Often people have no other choice than to sell their house due to some unforseeable life event, like a death, change in employement, change in marital/familial status, or a combination of any of the above.  It’s been my experience, at least in the current market, that very few of these homeowners are in this situation solely due to financial irresponsibility on their part. 

So let’s cut to the chase.  What does a buyer or seller or real estate broker need to know about short sales?

Brokers:  Do your homework. Take classes, even if you’ve done short sales in the past.  The rules are always changing and each individual bank has their own process.  Today’s classes will have today’s relevant information about today’s banks.  Ask your potential listing client for any and all information they have on any liens or possible future liens.  Then call your title desk and verify.  Stay in close communication with your clients about their payments and where they may or may not be in the foreclosure process.  Be sensitive to what your clients are going through, because it’s probably very emotionally charged on some level or other.  Be aware of all their options regarding their home; they maybe able to work out an agreement with their bank, or they may be in a situation where a deed in lieu of foreclosure will be their best cash-flow choice (and yours).  Strategy tips: Don’t under-price the home.  Price it where you think it should be priced based on the local market and comps, and then set a price reduction schedule.  Take the listing at a higher fee, because the bank will want to negotiate this, you guessed it, the week of closing.  Also work with your clients and their timelines in regards to the length of your contract.  Physically walk through your listing every week, and keep your clients motivated to keep it clean, tidy, and ready to show.  When you have your sale agreement, be sure that every detail is correct, and call the bank, again, before you fax 50+ pages, just to be sure you aren’t missing anything.  Glue your phone to your hand, in anticipation of the BPO broker’s call.

Sellers:  Communicate, communicate, communicate.  Communicate with your bank, your creditors, your spouse, and your broker.  Try not to wait until you can no longer make your payments.  Explore all of your options whether it be a possible re-finance, leasing the property, an adjustment to your payments negotiated with your bank, or even a deed in lieu of foreclosure.  If you are carrying a significant amount of unsecured debt, negotiate lower payments with those creditors. I say this because if you feel that selling is your only option, your real estate broker is most likely going to ask you to put some money and/or effort into the property, which may not make cash-flow sense if you need to save for your eventual move, whether it’s renting locally or in a new town.  Have all of your paperwork in order, according to what your bank tells you they will need, so that when you do have a sale agreement, no time is lost searching for paperwork.  You will most likely need pay stubs, bank statements, and an account of your monthly expenses, as well as a hardship letter.

Buyers:  Be patient, understanding, and diligent.  The sellers are people just like you, only going through difficult times.  Understand your timelines and when they start and expire.  Here in Oregon, none of the clocks start ticking until the bank approves the sale, and then you have the normal deadlines for earnest money deposit, inspections, etc.  Yes, you could be waiting to hear about your offer for over 45 days.  And the bank could say “No”.  Deals are out there to be had, but be cautious writing offers that are too low, or are asking for too many concessions.  The folks at the banks are dealing with literally thousands of files, from all over the country, and aren’t able to take the time to read through all the details of your offer and why, and will just deny it if it’s too time consuming.  Once approved, though, be timely with your inspections and appraisal.

Opinions expressed in this article are the opinions of author, and not to necessarily the opinions of Meadows Group Inc.
All rights reserved on all original content, non-original content is given credit | Michelle Berry | 2009