Short Sales Best Practices

In recent years, the percentage of short sales has been on the rise, having grown from just 10% in 2009 to 24% in 2011. With that said, it’s important to understand best practices when embarking on the short sale business.

The most difficult aspect of the short sale process comes from negotiating with the lender. It can be a slow and sometimes tough process, with individual lenders having their own special list of requirements, protocols and documentation. The paperwork can soon pile up and things can easily get on top of you; that’s why having a professional short sale negotiator is essential.

The benefits of working with a short sale negotiator are enormous, as they are trained professionals who deal specifically with the banks so you don’t have to. In fact, they are often the sole point of contact when it comes to lenders, and they work with the banks to make the short sale work for all parties involved. To be more specific, the negotiator is authorized on an account (allowing them to communicate on behalf of the homeowner), before submitting the short sale package to the lender. The negotiator contacts the bank proactively to negotiate the deal, keeps a detailed log of all steps of the procedure (communication, documents filed, etc.) and informs everyone of the negotiation status.
A short sale negotiator’s knowledge and experience is invaluable, as they have the ability and expertise to:
• Refute a bank or lender’s assertions of current market value.
• Escalate a short sale transaction to the correct individual or department within the lender organization.
• Negotiate the release of all documents that affect the property, not just release of the lien(s). (Example: promissory notes and deficiency judgments)

Why You Need a Short Sale Negotiator
Here’s a list of some of the ways dealing with a short sale negotiator can benefit you: You save time and frustration. Instead of being held up in constant phone calls, being on hold or transferred to another department, or negotiating with loss mitigators, you’re able to put your time back into marketing, lead generating or creating new business, without having to worry about paperwork going awry or having to negotiate with lenders. Letting a professional handle all these details can save you from an unlimited litany of potential headaches. Negotiators have extensive knowledge and experience; as they deal exclusively with lenders to negotiate short sales on a daily basis. They understand the process inside and out, and have the training to get the job done without a hitch. They can also give you the benefit of their insider knowledge and expertise. When it comes to short sales, the process may seem simple on the outside, but to lenders it can appear to be a whole different ball game, so it’s best to trust a short sale negotiator.
Efficiency and good results; did you know professional short sale negotiators are usually paid based on results? This means that they are generally well-motivated to work as efficiently as possible, and will generally get the job done quickly.

Before embarking on a short sale, ask your seller if t hey have consulted an attorney and their tax advisor to make sure they understand the options available to them and the potential liabilities.

Choosing a Negotiator
It is best to let the seller choose the negotiator. If things don’t go well, then you won’t be at fault. However, often the seller lacks the experience so it is usually the agent that selects the negotiator. Of course, not all short sale negotiators are the same, so it goes without saying that you should be careful when it comes to selecting a negotiator that you’d like to work with. Look at their previous experience and track record. You might want to team up with an individual negotiator or a short sale negotiation company, but either way, you won’t regret it.

How to deal with a demanding short sale negotiator
If you find yourself having to deal with the many demands from a short sale negotiator who seems to be requesting item after item, and especially if the requests seem unusual, it’s often beneficial to find out more information about the reason for these requests. Sometimes it can seem like short sale negotiators are out to get you, but generally there is a good reason for these extra demands. Bear in mind there are a lot of players in short sale negotiations, such as the investor, the negotiator, and higher up, all the way to supervisors, management, and even the mortgage insurance broker. Each of these stakeholders may require additional documentation which can sometimes seem unusual. Even though it feels like you are going out of your way to meet a negotiator’s demands, it’s always wise to build a good, trust worthy relationship with your short sale negotiator. That way, you can get to the bottom of who is requesting what and the reason for the request.Especially if you are new to the short sale market, it’s a good idea to keep records of any challenging companies, investors, or mortgage insurance brokers, just so you can be a little more prepared for any problems that may crop up during a short sale. That way, when you get a last-minute request for some unusual or very specific documentation, you’ve already got a heads up from last time.

Communication is key
A key to maintaining a good relationship with your short sale negotiator is communication. Anyone who’s been there knows sales have been lost through lack of communication, either via a short sale negotiator, or miscommunication with the investor themselves. Due to the way the short sale system is set up, it’s important to remember that once you’re past a certain step, there’s no way of going back. For example, if an offer’s been submitted and you lose the buyer, you have to start from scratch.

Problems
will arise if, for example, you’re negotiating a short sale and the buyer’s lender comes back with more contingencies, but your negotiator has moved to the next stage of the process before consulting you. In this instance, if the sales process does not continue and close, the process has to be restarted all over again. Don’t learn this the hard way, make sure to maintain communication every step of the way with your short sale negotiator.

Insurance
Insurance can play a part in the negotiations, and be aware that every Errors and Omissions policy varies. Not all policies cover the short sale process. As you can imagine from the difficulties described, the process is ripe for future claims. If
a negotiator fails to exercise reasonable care or performs in a way that does not conform to standards of practice, a seller may claim damages. Therefore, both listing and selling agents want to ensure their Errors and Omission insurance coverage is adequate.

Payment
Finally, the method of payment for short sale negotiators varies, and should be considered at the beginning of the process. As mentioned prior, most short sale negotiators work for a results-based income, but this will depend on whether they are an individual or working for a company. Determine up front how the negotiator will be paid; will they be paid commissions based upon the sale price, or are their fees fixed, similar to fees earned by title companies, or other settlement service providers.

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2 Responses to “Short Sales Best Practices”

  1. I know that 2-10 HBRWC has negotiated successfully with Freddie Mac to have all of the Freddie Mac properties provide a home buyer’s warranty. Has 2-10 also been in contact with the major lenders to market to the short sale lender? I have had a local attorney tell me that the short sale lenders will not pay for the home warranty. This makes no sense, as the seller is already upside down and couldn’t possibly pay for a furnace in the middle of winter should it go out. Putting a warranty on the Seller’s property assures the short sale lender that the most they would have to pay is a deductible and it will protect the property during the lengthy short sale process. Please advise if any action has been taken with respect to these properties. In almost every situation, the buyer will want a warranty anyway … why not keep the property in good repair with a warranty that protects the short sale lender’s interest in the property during the listing period? The Seller still owns the property and is living in it and maintaining it. It is no different than any other Seller contract and can be converted to a buyer’s policy at closing. We need to educate the lenders (as you have Freddie Mac) to allow for the cost of the Seller’s coverage warranty.

    Thanks!

  2. Hi Karen, Thank you for your insight. It is true that lenders typically will not pay for the home warranty, one reason being that the listing period tends to be exceptionally long and can exceed the term of seller’s coverage.

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