The Biggest Short Sale Mistake Realtors Make and How to Avoid It

When you are starting out interviewing prospective clients and properties to work with on your short sales, do you ask up front who the lender(s) is? It is extremely important to know which lender you will be working with and I will explain why and let you know who the good ones are.

In my opinion, this is the most important fact on whether you want to take on a particular short sale. In fact, it is probably the most overlooked portion of the short sale process. One short sale that does not go through could cost you up to 100 hours of time invested. Time spent includes meeting with your client, gathering the financial paperwork to submit to the lender, marketing for a buyer, status updates with your client, calls to the lender - think of the countless times on hold for status updates, client status phone calls, and possible counter offer/resubmissions to the lender. There is what economists call an "opportunity cost" that is lost and this can definitely pertain to negotiating short sales. This simply means that the time you spend negotiating/working the short sale could cost you a more profitable deal because you missed that transaction due to your involvement in another transaction.

It is an extremely important use of your time to know what you are getting yourself into in the beginning of a short sale transaction. So, knowing the lender you are working with is extremely critical to a successful outcome of the negotiation. Lenders - once you know them, like people, tend to operate in a predictable manner. So, do you know if the lender you are working with takes a discount off of market value on their short sale and how much? Does that lender require the borrower to sign a promissory note for the deficiency balance? Will that lender let you counter offer if they do not accept the original offer? If so, how many times? Does the lender have to get a secondary approval from an MI company or investor, like Fannie Mae?

If the property is discounted 15% to account for the short sale and the lender only allows 10%, your buyer may not want to proceed. In particular, Bank of America is a lender who discounts their property 10% off of market value. And make sure you are fully prepared to persuade them as to what market value truly is.

The following lenders tend to want your seller to sign promissory notes - Bank of America, Regions Bank, Wachovia Bank - and explaining that up front, including the implications of a promissory note is critical. If it is brought up near the conclusion of the transaction, it could make a seller balk. Handling it up front will let you know if the seller is willing or not to sign it and will determine if you want to proceed with this seller.

Lenders like Aurora will close out your file after one counter offer. After that you have to submit a whole new file. The good news with them is they will tell you how much they are looking for on a counter offer.

Having another investor to deal with besides the lender is critical information that could make or break your deal as well. If you are working with an impatient buyer or seller, the expectation level needs to be set up front with them as far as the time frame necessary to close the transaction. Telling them it will take 2 months when it winds up to be 5 months (or more) could make all of your efforts wasted if the buyer walks or the seller gets frustrated with the process. This is because when there is another investor like Fannie Mae or Freddie Mac, more than likely they will want 2 Broker Price Opinions (BPO's) and of course a second approval is needed.

So who are the good lenders to work with and who are the difficult ones that we have worked with? Good question. Here is the list:

Un-motivated Lenders:

•· Bank of America -Countrywide

•· Regional & local banks - i.e. - Century Bank, SunTrust, Wachovia, Regions Bank

•· Carrington Mortgage

•· Flagstar (because they go after the deficiency balance)

Motivated Lenders:

•· Wilshire

•· HomeQ

•· Litton

The list is updated continuously as sometimes difficult lenders can change to motivated ones.

Jim Costello, Buyer and Seller of short sale properties

813.785.8602