Darrell Catmull

What constitutes the biggest problem in a short sale transaction? Is it the self-interests of the lien holder? Or perhaps the Mortgage Insurance Company? Or maybe the note holder? Or could the servicer be at fault? Or, finally, do we simply point the finger at Bank of America and blame them for everything? Let’s look into this matter from a professional perspective and see what we can come up with. Nine years ago, I decided to make Short Sales my area of expertise. Yes, I was green; but because I committed myself to learn every angle, every nuance associated with short sales, I learned the basics quickly. With every transaction, my knowledge and capabilities grew. One of the major problems I faced was the lack of a standard as short sale was a mongrel few dared wrestle with. Years later Utah Realtors used a standard “short sale” form. It was oblique and worded in such a way that its use actually fueled the fire of an already terrible practice. Listing agents, without realizing the entanglements, submitted multiple offers to banks and permitted them--at their discretion—to decide which one to process. Whoa! This practice caused more delays, a lot of extra work, and a great deal of hassle and confusion. This practice also permitted the buyer to further tarnish the short-sale transaction; buyers were not waiting for agents and lien holders to sort out a poorly packaged short sale request.

The buyer is faced with a wide range of uncertainty when attempting to purchase a Short Sale property. As such, it is understandable that the buyer is less than fully committed to do the deal. But, is this wise? In Utah, many buyers are writing multiple offers on short sale transactions, hoping the property they truly desire gets approved before a lesser desired property meets approval. This is called “chumming for homes” and in the long run it can make matters worse. Also, to further compound a buyer’s lack of commitment is the fact that buyers don’t quit looking – they are viewing new listings as fast as they hit the market. And who can blame them? Not me! I once helped a buyer write nine offers on short sales, at a great expense of time and effort, all to no avail; they finally gave up and pursued a non-short sale property and closed. Sellers who are not upside down and priced fairly are benefiting greatly. Short Sales are driving buyers to conventional sellers and bank owned (REO) listings in droves, creating a bidding war on fairly priced properties.

The Utah Association of Realtors was proactive in rewriting the first short-sale addendum (SSA) form; the second SSA helped, but the current form also created another undesirable practice. Utah’s addendum has a clause allowing either party to cancel for any frivolous reason. To wit: “… if at any time prior to third party approval the buyer or seller determine that their circumstances have changed and it is no longer in their best interest to pursue the purchase … they may cancel by providing written notice.” Wow! If the lackadaisical practice of not executing contracts is not bad enough, this clause is. Buyers’ agents are not cancelling with written notice but merely abandoning a contract with no ramifications. I learn about a buyers forfeiture when I call the buyer with an update. While this clause is legally appealing due to the uncertainty of a short sale, it is nevertheless problematic. It hinders our success. Essentially, this clause confounds an already complicated transaction. When a buyer abandons a short-sale request, most lien holders thereby decline the request, forcing us to begin anew.

Further consternation for the buyers is the practice of the listing agents who are not adhering to solid short-sale techniques and systems. Let’s start with the terms of a short sale: For example, the price, deadlines, contingencies, and earnest money should be negotiated up front. It is not the lien holder’s job to get the highest and best offer for a property. That is the listing agent’s job. It is the listing agent who is the knight in shining armor capable of assessing and fixing the problems associated with short sales. Despite all the loopholes causing all the uncertainty, it is the listing agent who brings everything together, working with all involved, to make the best deal possible for all concerned. To do this an agent must have good intuition and to have good intuition an agent must have negotiation skills, experience and knowledge; or a mentor.

Here are a few guidelines to make this case in point:

1. The buyer’s agent needs to qualify the listing agent and determine if he or she truly understands mortgage servicing and short sales. If through a series of questions the listing agent appears unqualified – move on; or, if the buyer wants the property-- collaborate with the listing agent on behalf of the buyer. Questions you might ask: 1) How many short sales are you processing now? 2) How many have you closed since your first one? 3) Do you do your own processing or do you use a third party? If they hire it out ask who it is, (some servicers view certain third party processors unfavorably.) 4) Is the BPO/Appraisal done? 5) Do you know what the BPO is? 6) Are the sellers financials strong enough that the bank might require a note? 7) Will they sign a note? 8) Are the sellers providing information timely? 9) Do you have a complete package now, merely awaiting a bona-fide offer?
2. The buyer needs to put skin in the game by depositing one to two percent of the sales price in earnest money, thereby showing commitment; having skin in the game motivates the buyer to cancel in writing. If warranted, the buyer could provide a portion of the earnest money subject to cancellation. Should the buyer cancel before getting a decline or approval, one-third of the earnest money will be retained by the seller; If the seller cancels before getting a decline or counter offer, the buyer collects one-third of the earnest money as a penalty for the seller cancelling.
3. The listing agent, if not familiar with short sales, needs an experienced mentor to help guide the transaction. Learning how to perform satisfactory short sales is commendable for the agent determined to become proficient with the practice. An agent who is not versed in Short Sale techniques and is out for a paycheck is unacceptable and risky for all.
4. Sellers need to choose a listing agent who is experienced, trained, and/or has a reputable processing house (or team) behind them. Sellers should not choose an agent only because: 1) they are acquainted; 2) the agent sold them the house; or 3) the agent provides a great mailer.

Here is the bottom line: All parties have the power to make a short-sale palatable by being professional, proactive, committed, and informed. When one party to the transaction is not vested and confident, the whole transaction is at greater risk to fail. This failure can occur over and over until the bank finally forecloses. In a few years, the short sale transaction will dwindle, lien holders will become efficient, and foreclosures will not be so easily delayed. Once an agent knows the basics of a short sale its important that agents understand why the lender wants what they want. Without knowledge you can’t negotiate effectively. What is the Fannie Mae standard for contributing negative equity to a junior lien holder? If you do not know this basic knowledge you might not be suited for the lion’s den. But if you are committed, your best bet is to get online and find a reputable outfit who can teach you how to negotiate, and then how to apply specific negotiation skills in short-sale transaction leading to a high success rate.

For real estate professionals, I found The Real Estate Negotiation Institute a tremendous resource for negotiation training. You will too.

There is some sentiment in the real estate community that banks are power grubbing and denying short sales to stay control.  Control of what?  Mortgage lending is a critical role in real estate.  Are you one of those ranting about the banks?  As a veteran short-sale agent I understand the position of the note holder, servicer, mortgage company and guarantor.  Who are all these players?  These entities are for profit companies who lend money in a bubble and bust economy.  They make it possible for you and I to earn commissions; NAR certainly cannot take credit as they don't lend money to our buyers.

Servicers make a commissions on collecting payments for note holders.  When a servicer cannot fulfill their contractual obligation, the servicer has to dip into their “savings” to pay the note holder in full.  Because this is unsustainable long-term, the loan is packaged with a guarantor (GSE’s like FannieMae) and mortgage insurance to help absorb the blow when borrowers walk away or sell short.  The agreements between the servicer and insurance entitites state that they get final approval.

The note holder can be a bank but can also be a pension fund, hedge fund, foreign or private investor.  Without all these valuable players, America, you and I, suffer greatly as the real estate industry would come to screeching halt; millions of people including you and I would be unemployed.  I guess by now you can tell I'm a real estate broker and cheerleader for banks or Financial Holding Companies (FHC's).  The FHC's are not the problem, the ignorance and adversarial positions inside the industry are the problem!  Ideological Polarization is the problem! 

Information is easy to come by so learn how the system works become a team player and excellent negotiator; maybe then, you will see that Short Sales are a safe haven that the mortgage industry embraces when a bona-fide hardship is present.  By respecting the players position and honoring their right to investigate the hardship you'll close short sales easier and faster than being adversial or having an entitlement stance.  If you were owed millions of dollars wouldn’t you make it difficult to commit fraud?  Wouldn't you exhaustively look for fraud before renegotiating a promissory note that you held.

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