Short Sales are not a new phenomena. We first became aware of short sales in the early 1990's during our last real estate downturn. At that time homeowners experienced very much the same as what we are experiencing now. There was a boom market in 1988-1989 where houses flew off the market, most listings had multiple offers, people felt that prices would never go down and real estate was the way to make instant riches. Beginning around 1990 we noticed the market starting to slow and homes increasingly harder to sell. By 1991 people who bought in 1989 were upside down on their properties and we were experiencing a major downturn in the economy. In Southern California we also had a retrenchment in the aerospace industry and we lost 1000's of jobs. All of us working as realtors quickly were introduced to short sales. What is a short sale? When the owner of a home owes more to their lender than they can sell their home for they go to that lender and ask the lender to absorb the difference. The short sale process should begin with finding a real estate agent who is very experienced with short sales. A short sale is a very different animal from a standard sale and there is an expertise involved. Once you have chosen an agent the next step is to talk to a CPA or tax consultant to see if you do a short sale will you have a tax consequence. Currently, on owner occupied property there is no tax consequence. However, on investment property the IRS sees a short sale as debt relief and it triggers a taxable event.Next it time to make contact with the lender and ask for a short sale package. Part of that package will be a letter authorizing the lender to discuss your loan with your agent. They will require that you also provide them 2 years worth of tax returns, pay stubs and bank statements. Asking price in a short sale is not as crucial as in a standard sale. Most listing agents list the home at a very low price and try to generate multiple offers. The best offer is then submitted to the lender and the process begins. Be aware that the short sale process is a very frustrating endeavor. Most lenders will take months before assigning a negotiator to your file. In the interim you are dealing with customer service representatives who do not have a clue to what is going on. The first month or two you rarely have any information to work with. Once you have a negotiator you begin to gain momentum and more information is forthcoming. This also is the stage where more documentation is required. Another major frustration with most of the lenders is they are not capable of handling the volume of short sales requests they receive. Documents are regularly misplaced and lost and you repeatedly fax the same documents over and over. Communication usually is lacking and a good realtor will check in with the lender on a weekly basis. It is also necessary to watch whether the lender has filed a NOD (notice of default) and started a foreclosure process. Usually the lenders while processing the short sale are also working towards the foreclosure. When this happens the race is on and you need to carefully watch the foreclosure process. If a sales date comes up you need to request a postponement. Most lenders will not even discuss a postponement until the sales date is 7 days away. We have actually dealt with lenders who have a rule that the postponement has to occur only on that 7th day. If you request it when it is 8 days out or 6 days out they will not grant your request.

The short sale process very often does not make any sense for the owner or for the lender. The systems are very often very rigid and no compromise or give is possible. Very often these lenders make unrealistic demands and kill deals that are both in the lender and the owners' interests. We have seen lenders turn down excellent offers and instead foreclose on homes which only increased their holding costs and ended with a lower sales price. Second lien holders are very often a major problem in short sales. We have seen them turn down deals over $1000 and when the first lien holder foreclosed they received nothing. Our argument to second lien holders always is get what you can rather than get nothing if the home is foreclosed on. Very often this advise is ignored and the deal is killed because the second won't release their lien. We also see HOA's killing deals. The 1st lien holder refuses to pay off the back HOA dues and the HOA will not negotiate so that they at least get something. When you do short sales you often wonder if you are dealing with mindless machines. Finally, many times you work a short sale you are not dealing with the people who actually own the loan. You are dealing with companies that service the loan. They are monetarily incentivised to foreclose rather than do the short sale. They make more money on the foreclosure than they do on the short sale. We have also heard that very often negotiators are paid bonuses if they get more than the original offer. Say you submit an offer for $150,000. If they can get $159,000 they will receive a bonus or commission. Very often you get these counters even though the original offer is excellent.If your short sale is approved your credit is not as badly hurt as in a foreclosure. It will be damaged because almost all lenders require you to be delinquent before they would consider a short sale. There are many things to consider when you are trying to decide whether to let the home go to foreclosure or to do a short sale. As stated before, find a good realtor experienced in short sales and also talk to a CPA.

Jeff Schlansky

Office (951) 506-9683
Email: cabest1@verizon.net



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