Insider short sale circles where abuzz over the past few weeks about legislation that was supposed to force lenders to respond to short sale offers within 21 days.
As unlikely as this sounds – legislation being able to force a lender to respond within a certain time frame would seriously compromise the lender’s ability to process the huge volume of foreclosure deals and short sales that they have in their systems – common sense prevailed.
Now the blogs are full of apologies, and it seems that particularly agents and attorneys have to back paddle for jumping the gun and creating false hopes and expectations.
And that’s OK, because here is the big problem of short sales in the market place:
Because they take so long, it is extremely difficult to get qualified end buyers into these deals, who purchase the property to live in and get a new loan to close the deal.
These types of buyers are eager to buy, because they see the opportunity in this foreclosure market.
They also have to move quickly to lock in the current low interest rate.
Plus, for a move-in buyer the excitement of having found a home they like can wear off if you don’t get a response for several months.
All agents know that. So I guess the wishful thinking effect got the better of them (well at least the ones that were jumping the gun…)
My point here is that the services of an investor who puts in a cash offer on a short sale are still and will be for the foreseable future a very important and valuable service in the foreclosure marketplace.
Our cash offer enables the short sale to be negotiated. Then the end buyer can be put into the picture once our short sale is approved.
If you are an agent or know of agents who would like to learn how to get more short sales closed with zero time spent on negotiations AND get full commission, get in touch through the comments on this blog!
Over the course of the past 24 months, we have negotiated a lot of short sales, both in-house and through short sale negotiation services. Here is our list of the Top 7 Short Sale Negotiation Tips that we’ve gathered:
1. Conflicting views on BPO (Broker Price Opinion) – Insist on getting an interior BPO. Do your homework and gather all factual evidence that supports a low BPO. Meet and accompany the BPO agent to the property and provide him or her your evidence.
2. Incomplete Package/Request Additional Documents – Often, the lender will delay assigning a negotiator to a file if they find something missing from the required list of documents for the short sale package. A variation to this is that the lender requests additional documentation, which can sometimes be just a minor item like some disclosure that has to be signed by the seller or buyer. Another variation is the phenomenon of the “lost file”. Be persistent and get them what they need. Make sure the package is complete in the first place. If it gets too silly move on.
3. Issues with or on the HUD-1. The HUD-1 is the main negotiation document as far as the numbers are concerned. If the lender finds something odd on it, they will not process the file. Make sure you have ALL fees and charges that are paid by the seller included on the HUD-1, and entered in the correct spaces. The amount due seller has to be $0.00. If the buyer is an investor or cash buyer, don’t expect to get any buyer’s closing costs approved. (Note: On a cash transaction the seller and seller’s lender have no right to see the buyer’s side of the transaction.) Double check the HUD-1 when you get it from your escrow or title company and before you submit it to the lender!!!
4. Back Taxes (property taxes). Property taxes will stay with the property even in a foreclosure. That’s why paying past due and prorated property taxes from the proceeds of the sale is never a disputed issue. However, it’s very important that you let your title company determine any taxes beforehand, and enter them on the HUD-1 that you submit with the short sale package. Once a payoff amount has been approved it can be difficult to take anything away from that.
5. Agents Commissions. Agents commissions are customarily paid by the seller. However, recently, lenders have been trying to cut down the amount of commission. In certain types of transactions (especially if the buyer is an investor or an entity), they have even tried to refuse to pay any commission at all. See my separate blog post, “Short Sale Commission Squeeze” for an appropriate answer to this.
6. Sellers Contribution. Recently some lenders have been demanding that the seller put actual cash into the transaction to close the deal. Considering that the short sale is a business decision that is driven by what’s best for the lender (taking the short sale or foreclosing), this demand doesn’t seem to make any sense at all. There are some indications that this issue may be triggered by lack of evidence that there is an actual hardship. If the credit report shows that the seller is current on everything but this loan, this could be an indicator. Provide additional evidence of the seller’s hardship. And make sure to not take the money from anywhere else but the seller if this demand comes up.
7. Trying to control resale. Lenders have recently tried to enter clauses into the short sale approvals that essentially control the title of the property beyond the closing of the short sale transaction. These clauses are attempting to prohibit the buyer from reselling the property within a certain time frame. If this comes up, do not just sign off on it! Most title companies will be on your side in arguing that the seller’s lender has no right to essentially cloud the title by these kinds of restrictions.
For most obstacles that you get thrown in your way of a successful short sale, you have two alternatives to keep it going: Abide or negotiate. Of course, it depends in many cases on the deal whether you CAN abide, but in most cases I would suggest to negotiate first, unless it’s easy to abide.
If you have other negotiation points that come up in your short sales, and if you’ve found great answers and negotiation strategies for them, I’d like to hear from you!
Please leave your comments and suggestions, and share your short sale negotiation tips below.
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In several of our recent Short Sale Negotiations the lenders have been trying to squeeze the commissions paid to real estate agents on the short sale out of the transaction and HUD-1.
In particular, when we were buying under an LLC or other entity that was obviously an investor buyer, the lender tried to refuse to pay any commission based on the argument that “the agent did not do any marketing for the property”.
Nice try!
Here’s how we countered and got the commission approved: We pointed out to the short sale lender that real estate commissions are not “marketing fees”, but they are paid for representing the buyer and/or seller as a licensed real estate agent.
Since there are serious liability issues attached to agents representation, we asked the lender to check with the board of realtors and the state association of realtors about the liability they are getting themselves into when they force the seller and/or buyer in a short sale transaction to be without agents representation.
As I mentioned before, we got the agents commission promptly reinserted into the HUD-1 and approved for the short sale.
Are you running into similar issues with ridiculous demands by short sale lenders?
I’d like to know about that! Please feel free to comment on this story and share your own experiences below.
Over the course of the past 24 months, we have negotiated a lot of short sales, both in-house and through short sale negotiation services. Here is our list of the Top 7 
