Bank Pays Seller $23,000 To Do A Short Sale

The story:
Underwater on their mortgage, the owner of this Issaquah townhome had decided to walk away and let the home go into foreclosure. The HOA president talked to the owners and convinced them to try a short sale.

Washington Property Solutions was able to successfully broker the short sale, as well as negotiate with the lender to get 100% of the seller's debt forgiven. Not only are the sellers in a better position financially than they would have been had they gone into foreclosure, they also got a bonus: a $23,000 cash incentive paid to them by the lender.

Lenders, including Chase and Bank of America, are paying significant cash incentives to encourage sellers to do a short sale and avoid foreclosure. The programs are for a limited time. Find out more about how short sale cash incentive programs work.

The Top 3 Reasons Short Sales Fail

Short sales are complicated.  With all the variables that need to be juggled,  it's easy to make mistakes that end up derailing a transaction.  Here are the most common reasons that short sales fail.  
 

1)  Failure to understand and justify market value. 

 

Setting a price for a short sale is the delicate art of balancing what a buyer will pay and what the lender will approve. It's important to understand how the lender values a property. The bank will commonly hire an appraiser or BPO broker to set a value after you submit an offer.  If you have set the price too low, the lender will not approve the offer.  Everyone loses.  The buyer has been given an unrealistic expectation of what they should pay, so usually is not willing or able to offer much more.  More importantly, your client's clock is ticking.  They have a certain deadline to do a short sale and avoid foreclosure, and you have squandered valuable time on a deal that was never going to go through. (If you think the value the bank set is unreasonable, this Ask the Expert article explains how to dispute lender valuations.)

 

2)  Not knowing the specific lender's short sale process.

 

On average, the bank's short sale negotiator has over 1,000 short sale transactions that they are processing at any given time. And each lender's process is different. If you don’t follow the lender's specific process or there is an error in the paperwork or you're missing a form, it all comes to a halt. Your file gets set  aside until the issues can be resolved. And unless you call, it can be weeks before you are even aware that there is a problem. (We have a dedicated staff that follows up with lenders daily to make sure the process is moving forward.)  The short sale transaction that closes, and closes quickly, is the one where everything is done right the first time. 

 

3) No system to monitor the short sale process.

 

Because a short sale has so many more variables than a traditional real estate transaction, one of the most important jobs the listing broker has is making sure everyone involved has all the information they need to make their part of the deal happen. We have a private password-protected online system that lets all parties see what's happening with a transaction at any time- 24 hours a day, 7 days a week. This helps everyone involved track deadlines and ensure that no details fall through the cracks.  It's also important for you to build a team of professionals who are highly experienced in short sales. For example, we work with title and escrow agents who understand the additional documentation and complex issues that are specifically related to short sales.

How to Dispute a Short Sale Valuation That's Too High

Occasionally a lender's valuation of a short sale property is significantly more than what the market will pay.  As a broker you may have recourse,  however, every lender has a different process for reevaluating value. The first step is to contact the lender and get a detailed overview of their value dispute resolution process.  You want to make sure that you are providing the lender with the precise information they need to consider a change in value.

The BPO broker or appraiser who sets the original value often does not have a complete picture of the property. When we request that a lender reconsider a home's value, we gather as much documentation as possible.  That includes comps, a summary of repairs needed, and contractor bids for those repairs. We sometimes pay to have our own appraisal done as well.

 

If the lender is unwilling to budge on their value, we find out when the appraisal or BPO figure expires and then work with the lender to order a new one. 

 

Bank of America is one lender who is making an extra effort to work with brokers. BofA has streamlined their process for settling valuation disputes during a short sale, making it faster and easier for brokers to get the bank to consider an alternate value. Get step-by-step  instruction on How to Dispute a Bank ofAmerica Short Sale Valuation.  

Questions Buyer's Agents Should Ask in a Short Sale

Some buyer's agents shy away from short sales because of the complexity and uncertainty involved.  And it's true, short sales are complicated transactions even for those highly experienced in short sale negotiation. Properties that are represented by brokers with little or no short sale experience can result in transactions that are a nightmare for both you and your buyer. Here are a few questions you can ask to determine whether you want to move forward with an offer. 

    

1)  Who are the lien holders?

 

The amount of time it takes to process a short sale varies greatly from lender to lender. The broker should be able to tell you who the lien holders are, and the average number of days the lenders take for closing. This will help your buyer decide whether the lender timeline matches their timeline.  

 

2)  Who is negotiating the sale? How many short sales have they closed? Do they have experience working with the seller's lien holders? 

 

Real estate brokers, attorneys and mortgage brokers are the only individuals that can legally negotiate a short sale.  If the negotiator is a real estate broker, they must be listing or co-listing the property — they cannot legally negotiate the sale unless they are part of the listing agreement. 

 

Because of the complexity and ever-changing nature of short sales, you want to make sure the negotiator is highly experienced. That means they've closed a minimum of 100 short sales and have worked with a broad range of lenders, including the seller's lien holders. 

 

3)  Are there any additional costs to negotiate the sale? If yes, who pays those costs?

 

If the negotiator is a real estate agent, negotiating the short sale is part of the service that they provide when they list or co-list the property. There is no additional fee to anyone.

 

Attorneys typically charge a fee of 1-2% of the purchase price to negotiate a short sale. The lender may be willing to pay their fee, but more and more often they're not. The seller typically is undergoing economic hardship and doesn't have the funds. That leaves the listing agent, buyer or buyer's agent to pick up the attorney's fee. Before you make an offer make sure you have in writing who is responsible for the negotiating cost. 

 

4)  Is there someone dedicated specifically to follow up with the lender?  How often do they follow up? 

 

For a short sale to progress smoothly it is essential that the negotiator has a system to follow up regularly with all the various lender departments that are involved with the short sale.  The negotiator can never assume that just because they have sent the correct paperwork, the lender is moving forward on the sale. We call lenders daily to make sure the right people have the right information to close the sale in the shortest possible time. 

 

Here is more information to help your buyer decide whether buying a short sale is right for them.   

 

If you have any additional questions, we're happy to give advice. Call Richard Eastern at (206) 612-5541.

3 reasons why NOW is the best time to do a short sale

If you have a client who is considering a short sale,  there are a number of compelling reasons to make the move now.

1)  Tax advantages for doing a short sale are set to expire.

When a lender forgives a homeowner's debt, the tax laws had previously considered the forgiven debt as taxable income. This law applies equally to short sales and foreclosures. 

 

The Mortgage Forgiveness Debt Relief Act enacted in 2007 allows debt forgiveness of up to $2 million to NOT be considered taxable income if:

• The house has been used as the principal place of residence for at least two of the  previous five years.
• The debt has been used to buy, build, or make substantial improvements to the home.

That law is set to expire at the end of 2012. While Congress has begun discussions on extending the act, the outcome is uncertain. If a seller wants to make sure their deficiency is not counted as taxable income, their short sale must close by December 31, 2012. That means they need to get their house on the market now.        

2)  Lenders are offering significant incentives for sellers to do a short sale instead of foreclosure.

Banks have recognized how expensive the foreclosure process is for them. They also do not want to add to their already bulging inventory of bank-owned homes, which are expensive to insure and maintain. As a result Chase and Bank of America are paying significant cash incentives to encourage sellers to do a short sale and avoid foreclosure.

 

Recent examples include a client who sold a $200,000 home and received a cash incentive of $20,000 at closing, and the owner of a $350,000 home who received $30,000.  If you have a client who is – or should be – considering a short sale, this may be the incentive they need to move forward.  

3)  It's a seller's market.

 

Inventory levels in the Puget Sound area are the lowest they have been since 2006.  Low interest rates and affordable home prices have drawn additional buyers into the market. As a result, more buyers are competing for a shrinking pool of properties. That growing competition for homes has resulted in multiple offers and escalation clauses on many of our short sale listings. It's an ideal time to sell a home.   

Short Sale Statistics Report- 2nd Qtr 2012

Distressed property sales were down overall throughout the Puget Sound area in the second quarter of the year, according to the Washington Property Solutions 2nd Quarter Short Sale Statistics Report. The fall was due to a significant drop in the sale of bank-owned properties. Short sales showed moderate gains.

Short sales in King County increased year over year from 11 percent of all home sales (single family homes and condominiums) in the second quarter of 2011 to 13 percent in the second quarter of 2012. Bank-owned sales fell from 23 percent of all home sales in the second quarter of 2011 to 15 percent of all sales in the second quarter of 2012. 

In Snohomish County, short sales grew from 13 percent of all home sales in the second quarter of 2011 to 16 percent in the second quarter of 2012. Bank-owned sales decreased from 35 percent of all home sales in Snohomish County in the second quarter of 2011 to 23 percent of all sales in the second quarter of 2012. 

Pierce County short sales rose from 14 percent of all home sales in the second quarter of 2011 to 15 percent in the second quarter of 2012. Bank-owned sales fell from 38 percent of all home sales in Pierce County in the second quarter of 2011 to 29 percent of all sales in the second quarter of 2012. 

The full report includes historical statistics for both Short Sale and Bank-Owned properties in King, Snohomish, Pierce and Kitsap counties.

How Short Sale v. Foreclosure Affects Credit Scores

A key issue for clients facing a short sale or foreclosure is how each affects their credit score. There are a number of factors that favor a short sale over foreclosure.

If the homeowner is participating in the federal government's Home Affordable Foreclosure Alternatives (HAFA) Program, there are definite credit benefits to choosing a short sale over foreclosure. Recent changes to the HAFA Program dictate what the lender can state on the borrower's credit report after a short sale, and lessens the impact on the borrower's credit rating. Credit bureau reporting of HAFA transactions where the deficiency is forgiven is now to be reported as "Paid or closed account/zero balance" or "Account paid in full/a foreclosure was started", as applicable.   A short sale is usually reported as “Account paid for less than the full balance”, or similar statements which have a negative affect on the homeowner's credit score.

While doing a short sale will negatively affect credit, short sales by their very nature may well have a lesser effect on credit than foreclosures. For instance, a completed foreclosure means the borrower has, at a very minimum, missed six months of payments (often considerably more). The property has also gone through a completed foreclosure sale. So while a short sale negatively impacts credit, the effect has been shown to be less than a full blown foreclosure which followed months, if not years, of missed payments.

Here are a few additional benefits of doing a short sale v. foreclosure:

• With a short sale, the homeowner is in control of the sale, not the bank. In fact, today cash incentives may be available to homeowners who decide to do a short sale instead of foreclosure.
• When the consumer wants to obtain a loan to purchase a property in the future, more opportunities will be available to them sooner if they do a short sale. For example, contrary to popular belief, one can be current on their payments and still do a short sale.  And if a homeowner is current on their mortgage through a short sale, they can qualify for an FHA loan afterwards without any waiting periods.  The same option is not available following a foreclosure.
• Some people feel there is a much stronger social stigma attached to foreclosure as compared to a short sale.

Every homeowner's situation is different, so we always recommend speaking with a real estate attorney who can offer advice on the legal and tax implications for each individual's circumstances.   Washington Property Solutions partners with a highly respected real estate tax attorney who can answer any financial questions your client may have and help them make the right decision. Call us at 425-381-2233 and we can refer you for a consultation.

Why agents are better short sale negotiators than attorneys

I have nothing against attorneys.  In fact, we always advise our clients to speak with an attorney about how a short sale will affect them. However, there are concrete reasons why agents experienced with short sales typically are more successful at negotiating a short sale than attorneys.

1) A short sale transaction will succeed or fail based on how experienced and effective the real estate agent is, not the attorney.

The structure of the purchase and sale agreement is critical to a successful short sale transaction. The number one reason that short sales fail is a lack of understanding on the part of the negotiator about how the short sale process works. Maybe they are unfamiliar with the intricacies of all the forms that need to accompany the purchase and sale agreement. Or they don't understand how lenders manage short sales. Or they insist on including language in the agreement that banks are not willing or able to approve. For example, a P & S agreement we saw recently that was written by an attorney included a 25 day closing deadline. Since the average short sale takes 60 to 90 days to close, the inclusion of this impossible deadline guaranteed the sale would not go through, creating frustration and lost time for buyer and seller alike. 

Deep understanding of the real estate process, knowing what lenders want, qualifying buyers, setting the right price, providing constant communication with all parties-  these are the keys to short sale success. And these are  skills unique to a real estate agent who specializes in short sales, not an attorney.                 

2) If you use an attorney to negotiate a short sale, will you or your client get stuck with the bill?

All short sale negotiators are paid for their work.  If the negotiator is a real estate agent, negotiating the short sale is part of the professional service that they provide and are compensated for through their commission.  There is no additional fee to anyone.   

Attorneys typically charge a fee of 1-2% of the purchase price to negotiate a short sale. Sometimes the lender is willing to pay their fee, but more and more often they're not. Since short sales sellers typically don’t have the money, that leaves the listing agent, buyer or buyer's agent to pick up the tab.   The listing agent certainly doesn't want to get stuck paying the fee. And it's tough enough to sell a short sale property-  why make it harder by adding the possibility of additional fees to the buyer and/or their agent?  

We were recently involved in a situation where a law firm negotiating a short sale neglected to have the listing agent or seller sign a services contract, leaving it unclear who was responsible for paying their 1% fee. Once the short sale was approved, the firm asked the listing agent to pay the fee of $3,100 and threatened to not allow closing until they were paid.

If you depend on a third-party negotiator that charges an additional fee for their service you are to a large degree at the mercy of their process and their timing. The best way to avoid being taken hostage by a third-party negotiator is for YOU to be in control of the sale.

The bottom line:  

• We believe that short sales are first and foremost real estate transactions, and they should be handled by real estate agents who are highly experienced in short sales.   

• Negotiating the short sale should be a part of the professional services that the real estate agent offers at no additional fee to anyone.  

If you're looking for legal advice, see an attorney.  If you're looking to sell a home, see a real estate agent.  

Tips For Pricing A Short Sale

We often get questions about the best way to price a short sale. In reality, many of the same principles that go into pricing a non-distressed property  apply equally to setting the list price of a short sale. Price depends on the location of the property, its condition, the availability of strong comparable properties, and the amount of competitive inventory.

When pricing a short sale,  the key is to strike a balance between what a buyer will pay and what a bank will approve. It's not unusual to see agents apply an across the board discount to a short sale property (for example, a 10% price reduction). This is a mistake. In so-called "hot" neighborhoods, short sales often can be priced at market value.  When the bank's appraiser does a value determination of a short sale property, they generally will try to seek out comparable short sales in the neighborhood. If there are none, the appraiser will use non-distressed properties as comps. If an agent lops $30,000 off the value of a home just because it’s a short sale, it's unlikely that such low offers would be approved by the bank.  

An added note: If you want to dispute a short sale valuation, and your client's loan is with Bank of America, BofA has launched a streamlined process for considering an alternate value.      

BofA launches faster way to dispute short sale valuations

Listing agents that disagree with bank valuations of short sale properties now have a new option. Bank of America has streamlined their process for settling valuation disputes during a short sale, making it faster and easier for agents to get the bank to consider an alternate value.  

The value of a property is established by independent third-party vendors shortly after a short sale is initiated. If a listing agent wants to contest that value, this is the new process:

How to dispute a Bank of America short sale valuation

1. Tell your BofA short sale specialist that you would like a reconsideration of the value.

2. The BofA short sale specialist sends you an investor-specific, easy-to-complete form that specifies all requirements for a successful value dispute.

3. You fill out the form and attach specified evidence.

4. You can expect a value dispute review within 10-12 business days once all required information has been received.

Evidence you need to provide to Bank of America to dispute a value

When contesting a home value, Bank of America requires compelling evidence to support your claim. Here are the guidelines outlined by BofA: 

• Do not reference property pricing amounts in the narrative on the form. This violates appraiser independence policy and is against industry standards. Any reference to pricing will disqualify the dispute. 
• Provide comparables that are recent, proximate (nearby) and similar to the property in question.
• “Recent” means sold within 90 days of the actual value document date.
• “Proximate” varies by location. In a rural area, for example, a home five miles away could be considered proximate.
• You will be able to provide additional notes to highlight characteristics of the comps.

When the dispute centers on property condition or hazards:

• Provide an itemized estimate from a licensed contractor on the contractor’s letterhead.
• Provide photos to illustrate the repair, condition issue or hazard you want to highlight.

The above is a summary of the new changes. Your Bank of America short sale specialist can provide additional guidance about the process.

3 Landmines That Can Destroy a Short Sale

There are some assumptions that a short sale negotiator can make that will wreak havoc on the process.  Here are a few common mistakes inexperienced negotiatiors make, and tips on how to avoid them.

Landmine #1: Assuming lender approval of an offer will automatically postpone foreclosure proceedings. 

In Washington State, lender approval of a short sale does not automatically halt a foreclosure sale. Once foreclosure proceedings are initiated, there are three parties involved in your transaction: the lender's loss mitigation contact, the lender's foreclosure contact (who is in a separate department), and an independent local trustee who has been hired by the lender to sell the property at auction.  Once lender approval is obtained, the relevant parties are supposed to take the necessary steps to take the foreclosure sale off the calendar.  However, there are instances where that does not happen, and the results can be disastrous. We recommend that agents always follow up with the loss mitigation department and local trustee to make sure they've received directions to cancel the scheduled foreclosure.  

Landmine #2:  Assuming that the short sale approval letter includes satisfaction of the seller's debt. 

Lenders may or may not issue a short sale approval letter to satisfy the buyer's debt or waive the deficiency in full.  Unless it is clearly stated in writing that the debt will be satisfied or the deficiency waived, you should assume that it is not.  While it is getting better of late, lenders can be notoriously vague on this subject in many of their letters. If you receive an approval letter that does not clearly outline satisfaction or a full settlement of the debt, it may require you to do further negotiation with the lender on your client's behalf. 

Landmine #3:  Assuming all banks have the same timeline. 

In the over 800 short sale transactions we've completed, we have seen timelines vary significantly from bank to bank. In our experience, after mutual acceptance is received it can take from 30 to over 90 days to get lender consent, depending on the bank. The investor on the loan may require another level of approval, and the existence of second liens and mortgage insurance can add yet more time to the process.  Knowing individual lender timelines is key in managing the expectations of the buyer and seller upfront.  

Some good news: Banks that use the Equator system- including Bank of America, Wells Fargo and Nationstar- have sped up the process considerably. The system includes deadlines and specific lender contact information, so it adds a level of accountability that helps you identify bottlenecks in the process and allows you to escalate things if necessary.           

Chase and Bank of America Paying Large Cash Incentives for Homeowners to do Short Sales

If you know someone who is underwater on their mortgage and has their loan with Chase or Bank of America, there's some good news. Both banks have started paying significant cash incentives to encourage sellers to do a short sale and avoid foreclosure. We've had clients in the past month get checks for up to $30,000.  Find out more information about Chase and BofA relocation assistance programs.

Short Sale Statistics Report- 1st Qtr 2012

Short sales and the sale of bank-owned properties showed steady increases in the Puget Sound area in the first quarter of 2012, according to the Washington Property Solutions 1st Qtr 2012 Short Sale Statistics Report.

In the first quarter of 2012, short sales and the sale of bank-owned properties accounted for 40 percent of all home sales (single family homes and condominiums) in King County. That figure was up from 36 percent in the first quarter of 2011.

In Pierce County, the percentage of distressed property sales increased from 43 percent of all home sales in the first quarter of 2011 to 54 percent in the first three months of 2012.

The jump in distressed property sales was particularly high in Snohomish County where the percentage increased from 38 percent of all home sales in the first quarter of 2011 to 51 percent in the first three months of 2012.

The full report includes historical sales data for both Short Sales and Bank-Owned Properties in King, Pierce, Snohomish and Kitsap counties.

New Washington State Laws Benefit Homeowners Doing Short Sales

The last week in March, the governor signed into law some significant changes that benefit homeowners involved in a short sale or facing foreclosure. If you have a client in either of these situations, you will want to let them know how they might benefit from these changes.

▪ Time Limitation for Collecting on Deficiency

A lender agreeing to the short sale of an owner-occupied property must now provide written notice of whether it intends to either waive or reserve its right to collect on the deficiency. Also, the time period to start legal proceedings to collect on a deficiency has been reduced from six years to three years. Again, these changes only apply to short sales of owner-occupied properties. They do not apply to foreclosures. In the case of foreclosures, a lender has up to six years to collect on a deficiency.

▪ Referral to Mediation

Homeowners that qualify for mediation under the Foreclosure Fairness Act may now be referred to mediation up to 20 days after a notice of trustee sale has been recorded. Prior to the change in the law, once a notice of trustee sale was recorded, a referral to mediation was no longer available.

▪ Time Period for Trustee's Sale

The time period between recording the notice of trustee sale and holding the trustee sale has been extended from 90 days to 120 days. This change applies to owners of owner-occupied residential properties who are entitled under the law to receive a letter from their lender notifying them of pre-foreclosure options.

The above is just a basic summary of several new changes. We always advise homeowners to consult an attorney regarding how these changes will affect their own situation.

How Form 22SS Affects Lender Review of the Short Sale

I get questions regularly from brokers who are concerned about how the terms they outline in Form 22SS will affect how the bank reviews the short sale offer. Contrary to what you might expect, many lenders don't review Form 22SS at all. Banks will look at the contract, but they're not concerned with the terms. In a short sale, the bank alone dictates the terms, from sale price to closing date. They will look at the net proceeds, and also check to see if there is an addendum that outlines concessions that they will not allow, such as having a seller live in the property after the sale and pay rent. Concessions of this type will all but guarantee that the bank will not approve the sale.

While Form 22SS is of little consequence to the lender, it is critically important to your client. Form 22SS clarifies the process and terms that the buyer and seller agree upon in order to complete the sale. That includes:

▪ Whether timelines in the agreement- such as deposit of earnest money or inspection- begin upon mutual acceptance rather than the delivery of lender consent

▪ The number of days a seller has to deliver lender consent to the buyer

▪ The conditions under which the buyer can terminate the contract

It's very important to fully understand the implications of how you fill out the form. For example, in Paragraph 4 TERMINATION BY BUYER, if you check neither of the boxes, the buyer can terminate the contract at any time for any reason. With all these options and variables, Form 22SS can be confusing. If you need assistance with your transaction, we're happy to help. Call Richard Eastern at (206) 612-5541.

Short Sale Myths vs Reality: Closing Time

Many agents and buyers have shied away from short sales because they hear horror stories about them taking 3-6 months to close.

Here's a reality check: In the hundreds of short sales we've closed, the time from mutual acceptance to Lender Consent has averaged 60 days. If someone is inexperienced with short sales, that process can take considerably longer. Short sales require significantly more paperwork than a traditional sale, and if you don’t have a system for collecting and submitting that paperwork to the lender according to their individual requirements, things can really bog down. Many large lenders use a platform called Equator for all aspects of the short sales process, from submitting paperwork to ongoing communication. For those not familiar with Equator, getting up to speed on the software will also prolong the sales process. Most brokers we work with prefer to spend their time building their core business, and leave the short sale negotiating work to short sale specialists with a dedicated staff that handles all the details.

Major Changes Coming to HAFA

As of June 1, there will be significant changes to the HAFA program. The updates will allow a homeowner to remain current on their mortgage, qualify for HAFA, and go through a short sale with less of an impact on their credit.

The major changes include:

▪ The deadline for submitting for HAFA eligibility will be extended a full year, from December 31, 2012 to December 31, 2013.

▪ The removal of occupancy requirements: HAFA until now has required homeowners to have lived in the property within the last 12 months. This requirement is being removed.

▪ The $3,000 relocation incentive will be limited to properties occupied by an owner at the time of the short sale.

▪ Mortgage payments will be allowed to exceed 31% of the homeowner’s gross monthly income. The effect of this will be to allow a homeowner to remain current on her mortgage and still qualify, minimizing the overall potential impact to her credit, and certainly shortening the waiting period to purchase in the future.

▪ Junior lienholders may receive up to a maximum of $8,500, up from $6,000 previously (these are incentives to junior lienholders).

▪ There are also new mandates regarding what the lender can state on the borrower's credit report that, reportedly, will lessen the impact on the borrower's credit rating.

We'll post any new information as we receive it. We have more information about HAFA here.

Annual Short Sale Statistics Report

Short sales and the sale of bank-owned properties showed steady increases in the Puget Sound area through 2011, according to the Washington Property Solutions Annual Short Sale Statistics Report.

The percentage of single family home sales that were short sales remained fairly consistent from 2010 to 2011. The increase in distressed property sales overall as compared to 2010 is attributed to a steady increase in the number of bank-owned property sales. The report includes historical sales data for both Short Sales and Bank-Owned Properties in King, Pierce, Snohomish and Kitsap counties.

Short Sale War Stories: How A Third-Party Negotiator Can Kill Your Short Sale

Over the past few weeks, we've heard a number of stories from brokers who've had their short sales held hostage by third-party negotiators. Here are a few cautionary tales:

Case #1
The listing agent contracted with a third-party negotiator who typically gets paid out of closing costs (1.5% of the purchase price). However, in this case, the bank was not willing to pay buyer's closing costs. The buyer did not have an additional $7,200 in cash to bring to closing. The listing agent was willing to kick in 1% and requested that their negotiator take 1% instead of 1.5%. The negotiator refused to complete the sale without being paid the full 1.5%.

Case #2
A law firm negotiating a short sale neglected to have the listing agent or seller sign a services contract, leaving it unclear who was responsible for paying their 1% fee. Once the short sale was approved, the firm asked the listing broker to pay the fee of $3,100 and threatened to not allow closing until they were paid.

If you depend on a third-party negotiator for your short sale listings you are to a large degree at the mercy of their process and their timing. One third-party negotiator claims that their fees are paid by the lender "over 50% of the time." If the lender opts not to pay the fee, you may get stuck paying some or all of it.

So what are your options? We believe that short sales are foremost real estate transactions, and they should be handled by real estate brokers. Negotiating the short sale should be a part of the professional services that the broker offers at no additional fee to anyone. When we co-list with broker partners, we take the responsibility of negotiating the short sale. Our co-listing commission is 1% of the sales price. There is no fee to the buyer or buyer’s agent. The best way to avoid being taken hostage by a third-party negotiator is for you to be in control of the sale.

Understanding Form 22SS: The Lender Consent Deadline

Every week we get numerous questions about Form 22SS, the short sale addendum to the Purchase & Sale agreement. One of the most common sources of confusion is in paragraph 2, which outlines the number of days after mutual acceptance that the parties have to secure Lender Consent. What happens if that deadline passes?

If the date for Lender Consent outlined in the purchase and sale agreement expires, the agreement automatically terminates. However, termination of the agreement can be avoided. If the time limit is looming and it doesn't appear Lender Consent will be given in time, the listing broker can prepare an addendum to the P & S agreement to extend the deadline.

The addendum needs to reflect the additional time the lender will need, so it's important to talk to the bank and get a realistic estimate of their timeline. That information can then be used to talk to the selling broker and help them set expectations for their buyer. When there's uncertainty about where the transaction stands, buyers can get frustrated and walk away. If all parties have an accurate picture of the process, the chances of a successful closing are much higher.

Top 3 Myths about Short Sales

We hear a lot of misconceptions about short sales. In the interest of myth-busting, here are the ones we hear most often, and the facts behind how short sales really work.

Myth #1: All short sale negotiators charge a fee.

Most third-party negotiators, including attorneys, typically charge a fee of 1-1 1/2% of the sale price. They commonly try to get that fee paid by the lender. If the lender opts not to cover the cost, then who pays? In most cases, the seller doesn’t have the cash, or they'd be paying their mortgage. Usually, the buyer or buyer's agent is asked to pick up the cost.

Broker-affiliated negotiators like us include negotiating the short sale as a part of the professional services offered. There are no additional fees to anyone in the transaction.

Our feeling is: The market is tough enough – why make it harder to sell your listing? Which of these listings do you think will sell first?

"Short sale. Buyer to pay negotiation fee of 1 1/2% of sale price. ” “Short sale. Sale professionally negotiated by Washington Property Solutions with no fee to you or your buyer.”

Myth #2: Short sales are low-end properties.

There are short sales at every price point. Among our current listings are a $2.25 million home and two $1 million properties. Nearly 20 percent of all short sale properties sold in King County in 2010 sold for $500,000 or more. Short sales are projected to represent a significant portion of available inventory in 2012 and moving forward, and will be an important source of income for brokers as the real estate market works its way towards recovery.

Myth #3: You can buy short sales at huge discounts.

Short sale homes do sell for less, but not significantly less than market value. The selling price for short sales is usually 5 to 10 percent less than for non-distressed properties. The lender is looking to recover as much of the value of the home as possible, so they will not accept offers that are significantly under market value. So why do buyers purchase a short sale? In our experience, it's the same reason anyone buys a home- they like it. That 10% discount provides an added incentive, allowing buyers to get more house for their money.