Short Sales - The Good, The Bad, The Ugly!

The term "Short Sale" has become common place in housing markets over the past few years. Yet, for many, what a short sale is, and how it becomes a reality, is still a mystery. A short sale is a sale of real estate in which the proceeds from the sale are less than, or "short of", what's owed on the balance of the loan securing the property being sold.

The Good

At first glimpse, one might wonder why a lender would ever entertain such an arrangment, accepting less than what's owed on a loan. In most cases, the owner(s) are "upside down" with their mortgage. In other words, they owe more than their property is currently worth. While there are various reasons why owners are in their current distressed state, the good news is that banks have begun to embarace the short sale process. Foreclosing on properties isn't in anyone's interest - especially banks. According to the legal counsel for the Virginia Association of Realtors (VAR), the average foreclosure costs the bank approximately $65,000. That's not what they lose on the loan payoff. That is simply what it costs the bank to handle or manage the foreclosed property. For banks, avoiding foreclosure simply makes monetary sense.

Additionally, the Administration and Congress have moved to stem the foreclosure rate and make short sales a more standardized and acceptable choice for lenders. A push from lawmakers to improve and simplify short sales has encouraged banks to embrace this option for homeowners, avoiding further emotional and financial pain that would ensue if foreclosured on.

The Bad

From a Realtors point of view, handling a short sale transaction is never easy. On the selling side, there are two other major participants in the process, the homeowner (Seller) and the bank (Lender). Each of these bring with them potential problems. The good thing is, the homeowner is usually approaching the transaction as a motivated party. Unfortunately, that rarely seems to be the bank's case.

Complicating matters further is the lack of national standardized short sale procedures, and no mandated cummunication timelines between banks and realtors (who represent their clients). If there's anything more frustrating for the real estate community than their fruitless attempts to reach the proper point of contact at the bank when dealing with a short sale, I'm unaware of it. If the short sale cummunication and coordination process was designed any poorer, it would be DOA. But, fortunately, despite the piecemeal structure, many of the transactions do close....eventually. But, "muddling through" is no way to conduct business.

The difficulty in successfully executing a short sale is due to more than poor coordination and communication. Aside from these stumbling blacks, two other hurdles must be overcome. The first involves the banks, the other, the real estate community.

The Ugly

While we're almost four years into the Mortgage Meltdown, banks have yet to hire enough personnel to handle their short sale and foreclosure workload. We're routinely informed that negotiators and asset managers are beset with caseloads of 300 or more. With numbers like those, how can we expect success? Within the Realtor community, it isn't the numbers that are the problem, it's the lack of know how.

Many Realtors handling short sales or foreclosures lack the training needed to properly do the job. The Commonwealth of Virginia has no training requirement for handling these types of transactions. Many agents, if trained at all, do so after "muddling through" their first few such transactions. Wouldn't it be smarter to have the training prior to accomplishing the task? How can a professional do the job without knowing what has to be done? And, who is paying for the mistakes made along the way?

Both Short Sales and Foreclosures have excellent certification programs available. For the former, the Certified Short Sale Professional (CSP), and the latter, the Certified Foreclosure Specialist (CFS). But, unfortunately, many who should be taking these courses aren't.

Today, in many regions of the country, shorts sales and foreclosures account for more than fifty percent of real estate transactions. Luckily, there is an abundance of information on the subject available from lenders, the real estate community, and best of all, online. Time and experience has resulted in greater success in navigating each of these unconventional property sales approaches. But the players involved, and the processes, have miles to go before can begin to claim the process works well

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