Hello, So here's the deal

This is a FSBO who bought a new house last spring for 307,000 they still owe 307,000 they have 2 mortgages both interest only. The husband is about to be laid-off. They currently have their house for sale for 306,000 with a 2.7 agent co-op. They didn't want to list with an agent obviously because they can't afford compensation out of pocket, even the $8,000 they are supposedly offering a buyers agent. They had never heard of a short sale until I mentioned it and now they want to list with me but I'm unsure if this will be worth it. I've never done a short sale before and I want to make sure I'd get a paid for my work and advertising. If I list them for 5% instead of 6% that would still be over $15,000 they would want the bank to cover if they got a full price offer.
Their home is priced right there have been 2 comp sales in their neighborhood recently for about the same price.

Any short sale experts here?
Thanks

Take it! Get the short sale packages for the lenders, have the owners fill them out and have them write a hardship letter. List it at or slightly below market value. Let the market tell you when to reduce. Each lender has their own requirements. Your commission is part of the deal, the bank may ask you to reduce it, but you will get paid. If you are in Blaine, MN, give me a call or e-mail and I can refer a short sale negotiator to you if you don't feel comfortable dealing with the lenders.

Make sure you let the seller know that any loss will be reported to the IRS by the lender, and they may have to claim the forgiven debt as income subject to income tax. Also they may be able to hold the seller liable for the loss, if it's not negotiated up front, depending if its allowed in your state. It is allowed in MN.

Wow, thank you the advice. So I have them fill out the short sale packs when they sign the listing agreement? This is good info because I had been told to wait until we get a PA to talk to the bank. Obviously the PA would be contingent upon a short sale agreement. I'm glad I asked for help. I appreciate it.

I do live close to Blaine.

It's always good to have everything filled out so it's ready when you get an offer. Also get your comps and net sheet ready. The faster you get the offer to the bank, the faster they can reply, and the less likely the buyers will walk away from the deal for taking too long.

You may not need to talk to the lender untill a PA is received, most lenders have the packages available on their websites with instructions. If not just call and ask for it, you don't need account specifics. I tell the sellers to keep in touch with the bank, to let them know they are attempting to cure the default. Sometimes they will delay the NOD, if they ask nicely. They usually don't delay once the NOD goes out.

At least you are ahead of the game. I had a seller spring a short sale package on me when we got an offer. The deal fell through becuase the buyer wasn't willing to wait on the paperwork. I cann't blame them.

I didn't see if they are behind in their payments at this time. If not ... it might be more difficult to get the bank to go with a short sale at this time.

They currently are not behind, but they know they will be soon with the lay-off. Also I have no idea how they qualifief for the loan since they are barely making it now. Their mortgage is about 2/3's of their income. They want to get out and move to Houston where the husband could work year round(he's in construction)

Thanks for the great tips

That's where your negotiation skills come into play. If you don't have the skills, hire someone who does.

Do the short sale....

But at the same time, even if they can take out an unsecured loan worth 20-25K to cover the losses and the realtor fees, it's better than having a foreclosure on their record. It's not like they never had gone over their heads before....

Unless the properties sell like hot cakes, I might price it a little lower than market just to help move it faster. And I wouldnt short change the Buyer's Agent also. Need to increase traffic to this property, not lessen it with a smaller compensation. The Sellers need to face reality fast and that it's time to wake up from the rosy dream.

I wouldn't short side the buyer's agent, Even when I list my friends for 4.7% I payout the 2.7

But if the banks are going to ask us to cut commission no matter what does it make sense to list for 8% with a 4% payout to generate more traffic and give us more room to negotiate our compensation with the bank later?

The banks are not dumb. Do what is right for the client. Remember, at the very least they will have to report the loss as income, and the larger the loss the more income.

Yes, always make an appropriate payout to the buyer agent. The banks don't want to pay bonuses or way over the top payouts.

Generally they don't allow more than 6% total, some I have seen at 5%, with no more than 2.5% to either agent. They won't let you take the full amount if you get both sides. If they are going to take a hit, they expect you to as well.

If the lender will not let you have both sides then refer your buyer to another agent in your office and get a referral fee from that agent.

Banks aren't going to agree to this out of the kindness of there hearts.

In addition to the hardship letter,sometimes you will need a release of authorization signed by the seller to so you can commincate with the lender.The bank will also in the package make them list assetts if they have savings,401k,etc. etc. they will want them to pull money out of that to pay for the agent's commission.Lenders are not in the charity giving business.

Usually the banks won't even consider a short sale unless they are 90 days or going on 90 days behind on payments.One of the reasons is the goverment regulatory board that moniters lenders wants to make sure they are giving the homeowner every opportunity to stay in the home.

You mentioned they bought it for 307 but what is it worth?If it was worth 350 market value and needs little work the bank might want to foreclose and sell it themselves.

Expect the short sale process to be lengthy.

I choose to put my clients first, before my own selfish greed. By only having to pay out one side, the offer will net the bank more $ making them more likely to approve the sale and also reduce your seller's potential tax liability. I get more than just a paycheck out of helping someone out of a tough situation.

Aaron,
It is great that you are running a charity instead of a business. I am a businessman and not a social worker! Had I been their agent a year ago when the bought the house I would have done everything in my power to show them how BAD an Idea 100% financing with an interest only product was! That has to be the most fiscally irresponsible thing I have ever heard of anyone doing. It is not a Realtors job to atone for their past financial sins!

You run your business your way, and I'll run mine my way. Let's leave it at that. Like I said, I get more than just a paycheck when I can help someone avoid foreclosure. If that's charity, than so be it. Maybe when they get back on their feet they will call me to help them find a new home. I won't hold my breath but, who knows!

BTW-From past experience, I would be willing to bet they were pushed into that loan product. Not saying it wasn't their responsibility, but I bet that financing wasn't what they were originally looking for.

I completly agree on the 100% i/o. I use an I/O but I have equity, and the difference gets split into retirement accounts, that have outperformed my APR (so far). These products should only be used as part of a complete financial plan, that's what they were designed for!

hey aaron

which investment vehicles did you invest in? are they liquid and what kind of return are you getting?

why not use an option ARM to put more of the difference into your retirement accounts?

can you assign/wholesale the purchase contract when negotiating a short sale? i think the answer is no, but just wanted to get confirmation.

Well diversified in stock, UIT's, REITS, and funds. I think there might be a few muni bonds. We've dabbled in a bit of everything. They are liquid to the point they can be in a retirement account. Cannot withdraw, but can liquidate inside of the account. Up until this year was mostly real estate.
Not interested in negative amortization, with the option arm.

Off topic sorry!

Why not? Everything is negotiable, but why? Short sales are usually not good investments. No equity, sold at market value. They usually are a stretch to get at 70% arv. Unless completely trashed.

not sure, i was just assumming it cant be assignable since youre dealing directly with the bank/lender.

isnt a successful short sale the purpose of building quick equity especially when its overencumbered?

I just don't think there is enough of a discount on short sales to be considered a reliable investment vehicle. Unless you can create additional value with re-hab, or get a bank to believe the house is worth way less that what it is worth. It's possible, but I think finding pre-foreclosures with equity and potential for building additional equity through a minor or major re-hab is more valuable. Just my opinion, but if the numbers work, go for it.