Will Short Sales Be Your Demise?

I know many articles have been written about short sales and their impact on our market. I have spent the last two years immersed in the short sale arena working every day to improve our processes and closing ratio's. By their very nature short sales are difficult. I won't go on about the challenges of working out deals with over worked lenders and distant investors.

For the real estate professional I have historically held that it is an all or nothing proposition as to whether or not you want to represent short sale sellers. My reasoning behind that is the time and energy required to complete a short sale requires systems, staffing and an ongoing commitment to keep abreast of a rapidly changing environment. For the average real estate agent the time and energy put into one or two short sales is better spent prospecting for and working with non-short sale clients.

In the last couple of days I have heard, not verified, that certain banks are planning on allowing short sales to go through, wait a few years, and then pursue legal action against the borrower seeking a deficiency judgment. Anyone doing short sales is familiar with potential for lenders to seek deficiency judgments against borrowers who sell short or foreclose for the unpaid balance.

The danger for the real estate professionals became very clear to me when an agent I know who completed a successful short sale received a demand letter from the sellers attorney a couple of months later. The 2nd lien-holder had filed suit in court for the remaining ninety plus thousand dollars seeking a deficiency judgment. The borrower (previous homeowner) hired a bankruptcy attorney who promptly sent the demand letter to the broker to pay up the ninety thousand plus dollars alleging misrepresentation, unauthorized practice of law and so on. From the outside that is probably what every bankruptcy attorney worth their salt would do.

This question occured to me; "If 10 random agents completed short sales and subsequently recieved the same demand letter, how many would be able to produce disclosures, transaction hisotry, and documentation suficient to avoid being sued?". I don't know the answer to the question but being served 3 years form now for a transaction or two that was barely worth the effort in the first place may end up being the demise of more than one agent. With the market being as difficult as it is many agents are reluctantly taking on short sales to make ends meet until better times. Make sure you are proficient with the short sale process, and have your atorney write and review your disclosures before taking on a short sale. If not the good times may be short lived when they do come back.