Short Sales (Part 1)
(WHY MANY REAL ESTATE AGENTS RUN AWAY FROM SHORT SALES)
By Mark Howe, CDPE
Prior to 2007, most employees in the banking/mortgage industry had never even heard the words "Short Sale" - today, you hear these two words thrown around in the media during news reports. Declining real estate values nationally, and banking industry statistics that say, on average, the current lien holder (mortgage servicer) loses more than $30,000 LESS....PER HOUSE....when a short sale is successful compared to the result of a foreclosure. Most Mortgage Servicers are still frantically training personel to handle the heavy volume of files that need a solution like a short sale.
When a short sale is successful, the current lender(s) accepts the result of a sale at current market value as a settlement of the existing liens. When this happens, the home owner is able to resolve the mortgage with dignity, avoiding the long-lasting catastrophic results of a foreclosure. The current mortgage servicer cuts their losses. (And by the way, most lenders REQUIRE a home owner to use the representation of a licensed real estate agent to handle the transaction and they pay all or almost all costs of selling - not the home owner.) The buyer's purchase is an excellent value. The neighborhood benefits when foreclosure is avoided - it avoids a property sitting vacant and avoids another 50 cents on the dollar foreclosure sale.
In the current real estate crisis - SHORT SALES ARE A NO BRAINER - quite literally, everybody wins when a short sale is successful. Successful Short Sales can literally solve the foreclosure crisis - one home owner at a time.
It all sounds so good! So what's the problem???
The problem is that the need is so high for successful short sales, and the manpower that has been trained so far to handle these speciailized sales is so deficient, that currently less than 1 in 10 short sale attempts is successful and most attempts do end in foreclosure anyway. That's a problem. A success rate of less than 10% - for a process that is so needed by so many people - is a big problem. As CDPEs, my wife Lori and I find ourselves often educating accountants about the tax implications of short sales and attorneys about the legal and tax implications of short sales. A senior loss mitigation person at one large mortgage servicer shared with us that they currently have over 700,000 non-paying mortgage files and only enough personel to process a very small fraction of those files through a successful short sale process.
Another problem with the short sale process is that it is A LOT OF WORK for the real estate agent AND for the home owner- a short sale easily triples or quadruples the paperwork involved in the transaction - and after doing the work, too often the real estate agent finds that no one at the home owner's mortgage company will give the file attention. At overwhelmed mortgage companies, loss mitigation people do not answer their phone, they don't return their emails - the numbers of home owners needing the miracle of a short sale are in the millions - and mortgage servicers currently have the ability to process a small fraction of the files that need their attention.
Recently, my wife Lori finished collecting documentation from a troubled home seller client of ours. (To complete a short sale, or even have a short sale considered by a home owner's lender, all documentation that the lender will need to say "Yes" must be provided to the lender.) The assembled documentation from the home owner is assembled into a Short Sale Application Package - when transmitted to the home owner's lender, Lori had indexed the package - IT WAS 126 PAGES! And submission of the Short Sale Application Package is only ONE of several "milestone" points along the way to a successful short sale process that includes the successful sale and closing of the home.
Too many real estate agents have found themselves saying: "....so, let me get this straight....I'm going to do three times the work, for less than a one in ten chance of earning a paycheck for any of that work, I'll spend countless hours, on hold, and writing emails, to a lender who may, or may not, ever return any call or email. And, just on the chance that the home owner's lender does actually give the file any attention, AND they do say "Yes" to the short sale, AND I'm also successful at finding a really patient buyer who will buy the property even if it takes my seller's lender months to approve this miracle, these same lenders who are making this process such an obstacle course will, just before closing, insist that I reduce my fee or they won't close the transaction if I don't."
Are you starting to get the idea that, if you're a real estate agent, it would be really easy to talk yourself into running away from anything that even starts to smell like a short sale.
And now we are getting down to the core of the problem. Do you remember what it was like when you got a mortgage? You provided documentation to a loan originator and a loan processor until your brain was getting numb - so the lender could get your file through the very long and complex "approval" process. When a lender says "Yes" to a short sale, it is a very similar and complex "approval" process. In getting "approved" for the short sale however, it is a sure bet that the person doing the "approving" job at the mortgage company will have less than 3 years experience (because three years ago no lenders even had a short sale department, now they all do), the checklist that the "approver" will be approving well over 100 required pieces of information and documentation, and if one piece is missing, nothing moves forward at all - and if you're guessing that the "approver" doesn't have time to chase down missing documentation - you would be 100% right. Back to when you got the mortgage, you worked with the specialized knowledge of a loan originator and a loan processor to help you provide all the documentation necessary to get your loan approval - and then they assembled all the stuff for the underwriter in a professional loan package. The process of getting a short sale approved requires the same type and amount of work that it took to get the loan - the core problem is that the industry has not yet figured out who is supposed to be doing the work of assembling the professional short sale package. When you look around for the short sale originator and the short sale processor, you quickly realize that there currently are no such people.
If you're reading this, and you are a foreclosure risk, don't stop reading at this point!!!
I began my real estate career in 1990. I have been among the highest producing real estate agents in central Indiana since 1994. I've remained in real estate through 12% interest rates and three recessions. For the record, I just want to say that NOTHING could have ever prepared any real estate agent for the adversities that the housing industry faces today.
In mid-2008, when the worst economic collapse in the history of the universe was starting to run about 40% of the real estate agents in the United States out of business, my wife Lori (and I) decided that this was the perfect timing for her to end her 18 year surgical nurse career and join me in the rapidly imploding world of real estate. (And we totally understand if you are scratching your head and maybe even questioning our overall judgment in general at this point in the story...)
In 2009, my wife Lori and I completed our CDPE training (Certified Distressed Property Expert). So far, and I'm knocking on wood as I type this, Lori and I have stopped over a dozen foreclosures for home owners who were no longer able to make their payments - and each time, we have completed a successful short sale solution. Our success rate so far is 100%. This story does not end here however. On the left side of the page, click the next button, it's called "Why Mark and Lori RUN TO Short Sales."
Lori and I want to specifically acknowledge and thank RE/MAX International and co-founder Dave Liniger for their leadership and guidance - it is that leadership that has compelled us to seek the specialized knowledge we need to serve our clients effectively in this new real estate world. And special thanks to the Distressed Property Institute, LLC for providing Certified Distressed Property Expert (CDPE) training. We know we have the knowledge, and consequently the confidence, that we need to effectively serve all of our clients in this challenging market.