Hi Mary,

Why would they ask such a low price? Could it be that their mortgage company has not approved their asking price?

BINGO! That is exactly why...

It appears you have found an instance of a growing "bait & switch" (or perhaps more of a "bait and disappoint") practice being promoted by SO MANY otherwise 'professional' Realtors.... the attempt to directly represent a pre-foreclosure seller's home for sale prior to firmly securing an actual lien-release price agreement from the underlying lenders.

The way so many real estate agents are doing it as follows;
A) Hunt & secure the desperado (ahem... 'motivated') seller who agrees to contract them to 'list' the home for sale,
B) The Realtor is FULLY AWARE that they HAVE NOT actually contracted with the ultimate decision maker to the sale... which is the underlying lender(s) who hold the liens,
C) The agent reasons to themselves "without a buyer showing up, nothing is going to happen anyway... so the ends justifies the means for me to say & do whatever it takes to get some buyers showing up... and besides, 'that'll show the lender what the market values are'..." (Of course, the lenders loss-mitigation negotiators dramatically distrust any Realtor® they didn't directly hire, and automatically assume most buyers are trying to lowball a steal-of-a-deal...)
D) The Realtors® (unaware of the finance world) don't realize that the loss mitigation people keep a very close touch to the pulse of the closed-sale comparables, especially in how they relate to the prices being offered & closed at auction, and the larger relative micro-and-macro-economic trends... they keep a very holistic picture, and aren't easy to "pull one over on."
E) The hungry (desperate?) listing agent then tries the old "lowball price to create excitement and bidding war" strategy... which worked brilliantly 2 years ago (but has dried up as of late... oh drat!)
F) Then, motivated (and yes, sometimes greedy) buyers... who are often INDEED looking to "pull one over on the banks"... see the advertised lowball (but non-executable) faux-listing, and excitedly write their offers...
G) THEN the listing agent tries (COMPLETELY backwards, in the wrong methodology) to take the offer(s) to the loss-mitigation departments to get them to agree to a sale. The loss-mitigators are completely non-emotional, administratively/cruelly cold-minded, and don't give one-iota of a flying monkey about anybody else's timeframes. The buyers (most of which are inexperienced in the cold-hearted business world of buying from a banker... which is really what is happening,) get tortured and frustrated by the inexperienced Realtors® who are equally green to negotiating with objective, non-emotional bankers.

THE SOLUTIONS

There are really only two effective ways to buy a short-sale property;

A) Be a cold-hearted, objective, non-emotional real estate investment professional yourself... which means zero attachment to any specific property... which usually also means you have zero intention of actually occupying the subject property, but rather acquiring it for business purposes.

ALTERNATIVE;
B) If you are looking for a HOME... the find and buy FROM a person acting as #A... a fulltime, objective, non-emotional real estate investor... someone who likely has a whole pipeline of shortsale properties in various stages of negotiations, and of which (s)he ONLY presents for sale the properties whereby the lenders have ALREADY committed, in writing, to their willingness to release their liens at a specific price. Naturally, the price YOU would buy at would be marked-up for a profit to this interrim investor... but that is the reality at hand.

Hope that's helpful!
Dave Donhoff
Leverage Planner

Thanks, Dave. Just for fun I'm going to email the realtor and ask him if the lender has agreed in writing to the short sale & listing price.

Yup, short sale stories are starting to come out now. Apparently, potential buyers are being led by the nose into signing offers, multiple offers are being taken, buyers are being strung along for months, and all the while there is no commitment from the seller or the lender.

How agents are able to get away with this is beyond me - Dave? I thought legally you are not allowed to sign anyone up to a one-sided contract?

Then there are the "auctions" that do the same thing - take your non-refundable attendance fee at the door, then take your earnest money and signed contract. Only to take these contracts to the lenders, who can then refuse your offer for any reason. Again - the one-sided contract.

I really don't see see how this can be legal, but the auctioneers put it all in small-print. It's like the wild west out there right now.

I emailed the agent to ask about prior approval and he called me. Sounds like they are trying to create a feeding frenzy.

They had a contract three months ago, he says, and it fell through, so it was put back on the market this week. The lender has agreed to a short sale, he says. If I want to see the house I need to contact the owner. He also said they "have 5 or 6 offers right now" and it is being appraised tomorrow. So "you have to put in your best offer with the lender."

Dave, I'm roflmao! I love the new terminology for this down cycle..."loss mitigator". Cute. My business card read..."VP, Commercial Loans, Distressed Property". I think "Loss Mitigator" sounds waaayyy better than "Distressed Property"! :)

It is misleading though. By the time the property hits this "Loss Mitigator" person the lender has already taken the hit to reserves. As you've noted, it's only very rarely that a lender is taken by surprise when a borrower requests a short-sale. They should be called "Recovery Specialists". :)

For those of us who've been around awhile, at least there's no "In-substance Foreclosure" accounting rules anymore.

/tricia

We are the inexperienced buyer currently playing this "short" game. Everyone wants a deal, but we are willing to pay what the house is worth. We want to raise our family in this house...

It has been several months since we made our offer. From what we have been told - we are the only offer. And, we are not too far under what other homes in the area are currently asking (who knows what they will actually get). But, Im starting to think this was never going to happen. I actually wonder if we were used in some way that I have no understanding of.

We were told the folks living there have not paid their mortgage in several months, so I am wondering just how long it will be before the house is foreclosed and it becomes a REO. We are hoping we my still have a shot at buying the house then.

Any advice would be appreciated.

Jeri

Dave, why are you blaming the real estate agent for this? Most agents would rather not deal with short sales to begin with. It is a symptom of our market. We risk not being paid! I'm in the middle of 4 or 5 of these "short sales right now". Each one in a different part of the process. In all of them, the bank NEVER gives an answer on the short sale until after they have secured a buyer, and even with a buyer sometimes they dont even give an answer until there is a signed contract. (this costs the buyer money before they even know if they have the house)

The hungry (desperate?) listing agent then tries the old "lowball price to create excitement and bidding war" strategy... which worked brilliantly 2 years ago

WOW, how about the "listing agent" why do they have to be hungry and desperate because they are trying to get a sale for their seller before they go into foreclosure. If the listing agent can create a frenzy in this market, they are doing a great job!

) If you are looking for a HOME... the find and buy FROM a person acting as #A... a fulltime, objective, non-emotional real estate investor... someone who likely has a whole pipeline of shortsale properties in various stages of negotiations, and of which (s)he ONLY presents for sale the properties whereby the lenders have ALREADY committed, in writing, to their willingness to release their liens at a specific price

Tricia might be able to clarify this, but as far as I know, lenders are NOT COMMITTING TO ANY short sales BEFORE there is a buyer. Lenders want all the docs, pre approvals, proof of cash letters, hardship letters etc. and then the buyers wait, and wait and wait. It sure would be alot easier if they would show their willingness to release the property BEFORE people bid on it.

Hi Linda,

Dave, why are you blaming the real estate agent for this?

I am not blaming ALL real estate agents... only the ones for whom "the shoe fits."

Most agents would rather not deal with short sales to begin with.

Understood.... MOST agents have no business being in shortsale negotiations. Most lenders only really want to deal with the actual, capable, responsible buyers (directly) anyway. You know the saying about if its too hot in the kitchen? If an agent doesn't want to deal with the complexity and reality of short-sales, then they ought to focus on what they DO know how to do (and do well.)

It is a symptom of our market. We risk not being paid! I'm in the middle of 4 or 5 of these "short sales right now". Each one in a different part of the process. In all of them, the bank NEVER gives an answer on the short sale until after they have secured a buyer, and even with a buyer sometimes they dont even give an answer until there is a signed contract. (this costs the buyer money before they even know if they have the house)

As I described, the problem is that you are trying to operate as a real estate agent in a way that works between an authorized seller, and an authorized buyer... but you haven't secured the authorized seller yet. "WANTING" to sell is not the same as being "ABLE" to sell.

If you can't actually be the buyer yourself (as an interrim investor who can actually execute on your own account, if no end-buyer is secured,) then you are right... the bankers will almost never commit themselves (and why should they? The market is fluid and shifting all the time.)

WOW, how about the "listing agent" why do they have to be hungry and desperate because they are trying to get a sale for their seller before they go into foreclosure. If the listing agent can create a frenzy in this market, they are doing a great job!

Linda, I have no beef with you at all... however, if you (or anybody else "who would rather not deal with short sales") are trying to navigate the short-sale torture as a non-principal... which does NOT work the traditional way most agents narrowly understand... then (but for being hungry) WHY WOULD YOU EVEN TRY?

"Creating a frenzy" is not only meaningless in a short-sale negotiation, it is irresponsible to the buyers whom you are stirring INTO such a frenzy. UNLESS you are disclosing in the beginning, from the very initial advertisements and listings, that the ultimate selling decision is a dispassionate banker who has no time pressure nor emotional attachments... unless you are honestly making that understood from the very initial exposure and along every step of the way, then all the "excitement" is nothing but abusive predatory drama.

Tricia might be able to clarify this, but as far as I know, lenders are NOT COMMITTING TO ANY short sales BEFORE there is a buyer. Lenders want all the docs, pre approvals, proof of cash letters, hardship letters etc. and then the buyers wait, and wait and wait.

Which is precisely why successful shortsale buyers are patient, have multiple short-sale offers in the grinder to increase their chances of something working out, and have various hard and institutional funding methods lined up in advance.

It sure would be alot easier if they would show their willingness to release the property BEFORE people bid on it.

Well.... yeah... and then there's the real world.

This is EXACTLY why buyers need to either be patient, cold-blooded investors... OR "excited" end-occupants buying FROM patient, cold-blooded investors.

Trying to by an owner-occupant buyer in the negotiations directly with the bank is (as you have discovered) bloody hell.

Here's my sincere best wishes in your finding a much easier niche of real estate.

Cheers,
Dave Donhoff
Leverage Planner
(Short-sale buyer, investor, and interrim funder)

Linda, I have no beef with you at all... however, if you (or anybody else "who would rather not deal with short sales") are trying to navigate the short-sale torture as a non-principal... which does NOT work the traditional way most agents narrowly understand... then (but for being hungry) WHY WOULD YOU EVEN TRY?

Because we are in a market where there are plenty of short sales. A good agent adjusts to the market, doesnt sit back and say, Im not familiar with this, lets just sit and wait it out. I can't exactly say to my buyers. Gee, yes, I know those are really good prices, but we're not going to look at those. If they want to see them, then I'm going to show them. If I didnt, I'm sure there would be the comments from this forum about how real estate agents only show people what they want them to see.

"Creating a frenzy" is not only meaningless in a short-sale negotiation, it is irresponsible to the buyers whom you are stirring INTO such a frenzy. UNLESS you are disclosing in the beginning, from the very initial advertisements and listings, that the ultimate selling decision is a dispassionate banker who has no time pressure nor emotional attachments... unless you are honestly making that understood from the very initial exposure and along every step of the way, then all the "excitement" is nothing but abusive predatory drama.

Wrong. In every listing it says the property is a possible short sale. All buyers know this going in. The frenzy is simple supply and demand. Its what the listing agent creates for "his/her" client, after all that is who they are working for. They arent working for the buyer. The seller whether it be the bank or the home owner wants the best offer with the best terms. Would you rather they just put the house on the market for what the seller owes which is currently more than its current market value and hope to catch lightening in a bottle? THAT would be irresponsible.

Trying to by an owner-occupant buyer in the negotiations directly with the bank is (as you have discovered) bloody hell.

What difference does it make? I have buyers and investors that are both in the process of purchasing short sales. It isnt easy for either one of them. No one likes the unknown. No one likes to make an offer on a property and have to wait months to get an answer. It doesnt matter if its an owner occupant or an investor. That wasnt the point of the comment. Your entire commentary was on the inexperienced hungry realtors and the greedy buyers trying to buy short sales. Funny, your signature says "short sale buyer". Im sure you wouldnt be buying them if they werent great investments.

Here's my sincere best wishes in your finding a much easier niche of real estate.

Dave, with all due respect, what makes you think I am trying to find my "niche". I've been in the business way too long to be looking for my "easier niche".

Perhaps we should all stick to what we know, you in the mortgage business, me with the real estate business, huh?

Linda,

SOME real estate agents lead buyers to think that trying to buy a short-sale with a banker's required approval is similar to making an offer to a direct seller. I'm not accusing you of this, but it would be dishonest to deny that it happens MOST of the time.

It would be further dishonest to imply that even a fraction of the remaining active real estate agents have any idea how to properly negotiate a short sale with the bank's loss mitigators.

If every agent that listed a short-sale, or showed their buyers a short-sale, explained that the process typically takes 8-24 weeks, and has no predictability of being faster or shorter, and can fall out at any point along the way (or disappear into some black crack at any point along the way,) then we would have very very few disappointed buyers...

BUT that's not the fact. Owner-occupant buyers are (as an almost universal rule) greatly frustrated and disappointed by short-sales. WHO IS TO BLAME.... THE UNKNOWING BUYERS?

I suppose if they were properly prepared and educated about the realities, and STILL chose to proceed... and THEN grew sour, then sure... it is the buyer's faults.... but that's just not the realities in the marketplace.

Perhaps we should all stick to what we know, you in the mortgage business, me with the real estate business, huh?

How many short-sales have you successfully purchased yourself, as a principal? I've closed 5, and supported other investors to about the same number. Not enough to say "hundreds" nor even "dozens"... but that's 5-10 more than almost every other real estate agent (including the highest producing agents) I know.

Are short-sales "great investments"??? Probably 80%+ of them ARE BAD INVESTMENTS... and its the diligence of winnowing out the chaff from the wheat... and THEN securing the deal with the bank, that determines whether the business is good or not.

Yes... my "day job" is in finance... but my "retirement plan" is in portfolio real estate acquisition & management. If you really feel comfortable challenging me in that side of business, then take your time & aim really good...

Sticking with what we know is a great idea... *IF* we are talking about what we REALLY know.

Cheers,
Dave Donhoff
Leverage Planner

This message is marginally on topic; but my childhood home is now a member of this short sale world and has been on my mind a lot.

I received a lot of good advice here in 2006 when I sold my parents' home in East LA. The home needed updating, but was solid. It sold for 549,000.

Neighbors told me that the new buyers immediately gutted the kitchen -- installing new cabinets, granite countertops, new hardwood floors throughout; new windows; large new heating AC unit. (which I assume means that they took out the old gas furnace original to the house)

Four months after they bought it, they listed the house for 750,000. It didn't sell. From time to time I noticed that it was listed for sale at increasingly lower prices.

Now the neighbors call with interesting information -- they had seen the new owners taking out house components -- sinks, cabinets, heating ac unit.

I see that it is listed now at 323,000. It is being sold "as-is" with reference to the fact that there are no kitchen cabinets or sink, no bathroom cabinets, sink and every electrical switch plate cover is missing.

On the one hand, I am extremely grateful that my timing was excellent, but I do grieve for that house.
Susan

Linda, you wrote:

"In every listing it says the property is a possible short sale. All buyers know this going in."

This is not the case - there are lots of listings on Realtor.com, for example, that say nothing about being a short sale. You can only find that out by calling the agent.
Even if they do state "short sale" - buyers don't know what that entails. They only know that the listed price is less than what's owed on it, hence the "short sale" terminology.

"The frenzy is simple supply and demand. Its what the listing agent creates for "his/her" client, after all that is who they are working for."

What do you mean? That the listing agents can make up any price, even prices that the lender will not accept? That's not supply and demand. That's bait and switch, like Dave said.

"The seller whether it be the bank or the home owner wants the best offer with the best terms. Would you rather they just put the house on the market for what the seller owes which is currently more than its current market value and hope to catch lightening in a bottle? THAT would be irresponsible."

This paragraph shows that you do not understand what's going on. Rather than berating Dave and not being helpful, you should learn more about what buying and selling a short sale is all about.

Gina apparently you do not understand what is going on. I'm in the middle of 5 of these transactions right now. I understand very well what is going on.

Perhaps it is YOU that does not understand what is going on.

In every listing it says the property is a possible short sale. All buyers know this going in."

This is not the case - there are lots of listings on Realtor.com, for example, that say nothing about being a short sale. You can only find that out by calling the agent.

Then you know this going in. Realtor.com does NOT have all the information on a listing. You are seeing the public information. Short sale information is included in the realtor only section of the listing, something the general public is not privy to. It is up to your BUYERS agent to disclose that to you and explain to you what it means. As you said, most people don't even know what a short sale is, what would be the point of putting it in the advertisment?

"The frenzy is simple supply and demand. Its what the listing agent creates for "his/her" client, after all that is who they are working for."

What do you mean? That the listing agents can make up any price, even prices that the lender will not accept? That's not supply and demand. That's bait and switch, like Dave said.

There is no bait and switch. People bid on the house. There is no point in putting the house on the market for market value if it is not worth market value. You make it seem like listing agents are putting $500,000 homes on the market for $100,000. This is not the case. As far as I understand the seller has to be in distress. The amount owed on the mortgage has to be more than the current market value. IE: SHORT SALE. WHen many people bid on a home, the "winning" bid is usually the highest and most qualified buyer. This is the buyer the bank wants. The listing agent is doing their job. They arent out there to make sure Sally gets to buy a house for dirt cheap.

This paragraph shows that you do not understand what's going on. Rather than berating Dave and not being helpful, you should learn more about what buying and selling a short sale is all about.

Gina, I haven't seen your name here before. If you're having trouble with this statement, clearly you are the one who doesnt understand what is going on. I've been in the real estate business for almost 20 years. I think I've got a grasp on things.

My comments were simply to let Dave know that the blame cannot be put on the real estate agents who list short sales or the buyers who try to buy them. (Daves example, hungry agents and greedy buyers)

In the case of this house we found online (and will not pursue), the price listed on the agency website was NOT current market value or close to it. The listed price of $405K is $95K less than the lowest comp in the past year ($500K). And it is $35K less than the sale price of the most recent sale ($440) which closes shortly, and that home has 1/3 less square footage and a smaller lot. Current listed homes in the neighborhood are $479K and $550K.

Tell me that a listed price of $405K wasn't designed to create a feeding frenzy. Sure. I've got some swampland in Florida I'd like to talk with you about.

Since my name's been noted I'll toss in my two cents.

I'm more in Dave & Gina's camp (and the OP) than Linda. BTW, Gina's a well thought of business woman & I respect her thoughts & opinions.

It all boils down to:

The seller/borrower can only convey whatever interest they own in a piece of property. That statement 'should' speak for itself in this short-sale listing controversy.

Sticking some REALTOR determined listing price on a house without confirmed ability to obtain a full Lien Release at that amount is edging very close, IMO, to 'Bait 'n Swith'. At best, it's grossly misleading.

I suspect that this issue will, ultimately, be resolved through the courts. It's only a matter of time until a buyer resolves to sue seller, REALTOR, broker, & lender.

/tricia

Oops, it's showing that I had dental surgery yesterday. I can't talk correctly.

I meant "Bait 'n Switch" not "Bait 'n Swith". :)

/t

I have picked up quite a few short sales over the years (second only to the 'old folks who did no maintenance for 20 years' houses).
My favorite RE agent calls me if she learns of one I might be interested in, but then steps aside.
My attorney handles the various 'not very savvy' bank 'loss prevention' folks.
They usually succumb after a gentle brow beating about the actual value of the property.
Even then, it often takes them weeks to realize they are loosing money every day with little specter of a buyer at their often 'fantasy price'.

As Dave alluded, it is a rather hard nosed process, and unless you are really willing to tell the bank to forget the whole thing at almost any point you are not in the best bargaining position.

I have withdrawn offers after a few weeks, despite the bank's claims 'a decision is going to happen in a day or two'.

I went back once after about 4 weeks and made an even lower offer that was accepted in 3 days.
Reality had finally set in.

I just did a short sale for a client. The bank had my seller fill out paperwork and they "pre-approved" a short sale, but would not tell us a price they'd approve. Literally. It was maddening. It took 3 failed offers for the idiots in the loss mitigation department to slip up and accidentally tell me their formula. This particular bank wanted 92% of the BPO (broker's price opinion) that they had on file. Why they didn't just tell me that at the beginning was beyond me. But they did not, even when I asked repeatedly, both verbally and in writing. (I was trying to avoid setting a price and getting an offer that had no way of going through.) It almost seemed as if they just wanted the property on the market to gather as many offers as they could, and they'd pick the best. That's basically what happened, but after the inital offers failed, we at least had *some* idea of what price they wanted to get. Some realtors very well may be doing bait/switch, but often we're literally playing a guessing game with the bank, and not deliberately trying to set up a sale that has no way of going through. Short sales take hundreds of hours. It's no simple task. I know of NO realtor who'd willing set up a price that they pulled from thin air, as it only decreases the chance of selling the house at all. (Not saying that some realtors won't do that, just that the people I work with don't. It's a waste of time and energy.)

I was able to tell any offerors that yes, the bank had approved a short sale, but no, I did not know at what amount. We priced the house at what we felt was right considering it's condition. It was far below comps. It languished on the market forever. Turns out the bank's "formula" would have accepted an offer tens of thousands less than we had it listed for originally, and it finally sold at the banks' formula price. We could have saved everyone time, money, and hassle if we'd known their formula, but we didn't.

The whole thing is frustrating, and I think there's a lot of assumuption and blame toward realtors on this thread, when the fact is that the banks call the shots a lot more than realtors, and they can be squirrelly with a capital S.

Even if they do state "short sale" - buyers don't know what that entails.

With all the news these days of the "mortgage crisis" and foreclosures I'm sure that more people are learning what the phrase "short sale" means, but many don't have a clue. My husband recently told me that a co-worker was trying to buy a short sale. My husband thought that "short" meant "quick" - that the house was priced low for a fast sale. I told him that short sales were usually the opposite of a quick sale.

I am a real estate agent in Eastern PA. I had clients who put a bid on a short sale just before Christmas. We were patient and waited. After six weeks, there were several more offers on the table. The bank asked for highest and best. My buyers were justifiably irritated and kept their price.

The bank entered negotiations with a bidder who'd bid with a slightly higher price. That bidder was willing to put some oil in the empty tank, but the bank futzed around. Then they asked that bidder to go higher and they walked. In the meantime, the pipes froze and the property got damaged. To me the bank's handling of their asset was poor at best.

The property was set to go to foreclosure and I'm not sure what happened. My clients eventually got a home that they liked a lot better, and even bid a bit more so to avoid a possible short sale scenario. Short sales can be a real hassle if the bank has not committed to the listing agent in writing to a minimum sale price.

cocooner

Banks for the most part are not really equipped to deal with short sales.
They used to be few and far between.
The volatile market and the number of defaults has created a very differ net circumstance than the banks are used to dealing with.
They ARE going to take a loss on some of these properties.
They need to have the 'time is money' concept hammered into them harder.

They have completely failed to consider that the longer they take in making decisions, the MORE they are likely to loose.

Many of them got greedy and thought they would make a nice killing with adjustable rate mortgages that move all the rate risk onto the borrower.

They have now found out the risk was much higher than they thought and they ended up with it anyway.

I am at a loss at to what everyone thinks is bait and switch. First of all there is a slim chance that the listing agent will actually be the one who brings the buyer so putting any number on the house serves no purpose. I will agree that there are plenty of agents out there just using the words "short sale" on properties and have not yet even spoken to the bank at all to find out what their particular process is.

Sticking some REALTOR determined listing price on a house without confirmed ability to obtain a full Lien Release at that amount is edging very close, IMO, to 'Bait 'n Swith'. At best, it's grossly misleading.

Tricia I would LOVE if it didnt work this way, however, in all 5 short sales Im involved in, the bank won't even let us know if they would accept a short sale until after there is an offer let alone give us a price to try to obtain. In some cases they want "contracts" which is step 3 in my area. This means there is no confirmed ability to obtain a full lien release. This is also the reason the listings say "possible short sale".

What we get is: (and each bank is different)

We have verbally accepted that we will entertain a short sale. (AFTER an offer is submitted)

Then wait. One of my buyers has been waiting 5 weeks for an acceptance of their offer. They are a cash buyer on a house that has been on the market for over a year.

Yesterday I got a call from the agent who has listed a particular short sale they I have the buyer for. (another one) The bank told him, to submit all paperwork. This means my buyers have to hire an atty to do the contract stage (customary in my area) then sign a contract for which they have no idea if they will actually get the property. That brings a new set of problems that the bank will not accept any contingencies. So the buyer signs a contract, with no contingency for a home inspection. Do they pay for an inspection when they dont even know if they'll get the house? Do they pay for mandatory water tests in some areas of my county that cost $600? (So far they would be into this for about $1200 on a house they "might" get. The banks response: We will give him an answer in "about 7 weeks" if we will be accepting the offer. (doesnt help his situation since he would have already signed contracts)

The problem is the bank. WIth all the short sales and foreclosures, they have not streamlined the process to deal with this. I know of one house in particular that has had 8 offers. (Over a year of this). The buyers eventually walk away because they find something else and still don't have an answer on the short sale.

The blame is being placed in the wrong direction. Agents are working within the criteria of each bank. As Dave said, we are used to putting a number on the house, getting an acceptable offer and moving forward. If the banks don't give a number until after offers, contracts, maybe inspections, what choice do agents have.

I am at a loss at to what everyone thinks is bait and switch. First of all there is a slim chance that the listing agent will actually be the one who brings the buyer so putting any number on the house serves no purpose. I will agree that there are plenty of agents out there just using the words "short sale" on properties and have not yet even spoken to the bank at all to find out what their particular process is.
The bait & switch comes in when the LA puts the house on the market sign in the yard, with their name & number. Listing on realtor.com, with contact info. Potential buyer calls the LA may explain the short sale problem, but ah ha the LA has other properties just right for the potential buyer.
You are right the LA probably won't bring the actual buyer for the "short sale" because there was a bait & switch. That low price, that the owner/seller cannot agree to, is what brought that buyer.
Of course we know agents put up and leave up their sign to advertise their business. But this short sale price is deceptive when it is not an agreed upon price.

But this short sale price is deceptive when it is not an agreed upon price.

Then maybe the bank should set the price BEFORE it gets put on the market? Oh but wait, by then its too late, its a foreclosure.

Then maybe the bank should set the price BEFORE it gets put on the market? Oh but wait, by then its too late, its a foreclosure.
That would be nice, we agree on that point.

The problem is that the listing agents are NOT contracting with the actual decision maker. When they take a listing from the bank REO departments, they are.

Once again;
The traditional realty agent selling model simply doesn't work well (if at all) with short-sale transactions.

Common retail homebuyers are best served to buy from owner-occ sellers, or direct-ownership real estate investors. Agents may then be involved and proceed with their business the standard way they understand.

Buying from bankers requires an equally dispassionate, cold-hearted, all-business approach.

Cheers,
Dave Donhoff
Leverage Planner

Gosh, there's a lot of confusion going on, isn't there?

First, when you phone that bank...are you remembering that they merely have a servicing agreement for the property? Almost without doubt, they do NOT own the mortgage. They sold it on the secondary market 20 seconds after closing...remember?

So, there's another party involved in the short-sale transaction that, so far, nobody's even mentioned. And that party is...the OWNER of the mortgage.

Here's the basic time-line & procedures from inside the bank:

1.) OK, we have a contract.
2.) Call the borrower/seller.
3.) If the borrower/seller is experiencing financial distress then the bank requests the following: financial statement, tax returns, proof of income, etc.
4.) Upon receipt of the above from the borrower/seller the lender will then review & decide whether there's REALLY a distress situation.
5.) If there is financial distress, the lender then will discuss with the borrower/seller how they intend to handle the difference between the short-sale contract & the outstanding loan amount. Lenders do NOT just automatically write-off the difference. Yeah, yeah, I know in CA there's no recourse; but there is recourse in most of the country. Those negotiations take time.
6.) The lender will order an appaisal. They will NOT accept any REALTOR's word on value. Nor can they by Federal and/or State accounting regulations. Today, it could take 3 weeks just to get the appraisal back.
7.) So, now we're several weeks down the road. Let's say the lender believes the short-sale is in everybody's best interest & the deficiency issue has been resolved. Now,
8.) The lender submits the whole mess to the OWNER of the note/mortgage. Let's assume it's one of the agencies for simplicity's sake; but, believe me, it's not always simple who owns these mortgages.
9.) Fannie or Freddie then start the review process all over again because they MUST conduct their own audit. This includes another appraisal. They will also do an exhaustive review looking for fraud. This takes time.
10.) This is IMPORTANT. The servicing bank does NOT MAKE THE SHORT SALE DECISION. It may appear to outsiders like they do because they are not aware of the bank's internal workings but, believe me, they do NOT make the decision. The OWNER of that note/mortgage is calling the shots. The lender is merely functioning in the capacity as servicer.

The bank is acting merely as a CONDUIT to the owner.

And, Dave's correct. It's all a very businesslike procedure with no emotions & no time tables. There are policies & procedures in place, contracts between servicers & ultimate lenders, & that's what drives the process. Foreclosure is a lot simplier & may even take less time depending on property location & other factors.

Buying an REO is easier that buying a short-sale. REALTORS are trying to force the financial industry to conform to their usual business model. Aint' gonna happen, folks.

BTW, you who think bankers don't know or understand property values or market conditions are wrong, wrong, wrong! I understand the frustration with being unable to get an answer from a banker; but, I also understand that the person just has no control over when the owner of the note is going to act.

If REALTORS are going to place themselves between a borrower & their lender they should take the time to learn how the financial industry works. And, I must say, that I think it's going to be hard for you agents to assume this intermediary role. You just have no idea for certainty whether the borrower/seller has complied with the lender's requirements for a short-sale. Example: have they REALLY sent in the financials? Are they REALLY in financial distress or do they just not want to pay their mortgage payments? How, pray tell, do you as agent know for sure? You, as agent, cannot pull credit reports. You can't contact employers. Just because a person tells you they are in financial distress doesn't make it so especially in today's world when so many people are trying to just walk without consequences.

/tricia

Tricia, in our area it's become customary to have a short-sale client give a letter to the bank allowing the realtor to deal directly with the lender on their behalf. The short-sale I just did worked out that way.

My seller gave a letter to the bank allowing me to discuss their account. The lender was in turn able to verify the financial standings. (They didn't give specifics, but rather they were able to tell me that yes, this borrower fits our criteria for short-sale, etc.) Since I was the one on the phone for the better part of 8 months trying to get the house sold, it was really the only way to go. The seller simply could not physically make all the calls necessary. (There were days I literally spent hours on the phones with the departments.)

I don't think it's so much that realtors are trying to force themselves into the mix as intermediaries, but rather we're trying to get the job done on behalf of our clients. My client thanked me profusely for all the work, and said that if I hadn't stayed on board with him and helped him see the short-sale through, it would have gone into foreclosure. (While it's true that there's not too much difference to one's credit, this seller did NOT want a foreclosure.) There was simply no way he could have made all the calls necessary while working a full-time job.

reno,

You may be speaking with the servicing agent but I don't believe you're speaking directly with the mortgage holder. If you are, it's an industry first. Exception: there are some portfolio loans out there but the vast majority of upside down loans are secondary market loans.

A servicing lender may tell you whether, or not, a borrower/seller meets short-sale criteria with authorization from the borrower & may even allow you to gather required information; but they are not going to negotiate deficiency & such through a realtor without a POA. Or, at least they shouldn't be & if they are then that's another pot of trouble waiting to boil over. And they are still going to do independant due diligence for fraud. Their servicing agreement spells out concisely what they must submit to the note holder for approval of any short-sale concession.

/tricia

No, you're right. The bank really is just the "servicing agent". They have to clear everything with the "investors". (This was what they told me. The lender was Wells Fargo; don't know how other places are.)

I'm a middle man, Wells Fargo is a middle man, and the "investors" are the one who get the final decision. However, getting the all-clear to speak with the bank is just a small step to take to help streamline the process.

Hi Tricia, hope you're feeling better.

Can you answer my question about the legality of a one-sided contract? This is what stumps me - how someone can have you enter into such, without equal commitment to the transaction from the other side?

First, when you phone that bank...are you remembering that they merely have a servicing agreement for the property? Almost without doubt, they do NOT own the mortgage. They sold it on the secondary market 20 seconds after closing...remember?

So, there's another party involved in the short-sale transaction that, so far, nobody's even mentioned. And that party is...the OWNER of the mortgage.

I think most of our know that, for sake of simplicity we are referring to the "bank". We know many "banks" never made a loan in the first 20 seconds.

I think it would be helpful in our discussions if we were more specific in our terminology. Loose lips sink ships, etc. I know I have trouble following some of the posts because either incorrect or confusing terminology is presented.

Seller/borrower - obvious

Servicing Agent - Bank, mortgage company, or other servicing company where the borrower makes their payments. This is the place that posters are, I believe, referring to as "the bank". People are tossing around "the bank" as if they are in fact our next word...

Note/Mortgage Holder - Ultimate lender. This is the entity (or person in some cases) that actually owns the note/mortgage. If a short-sale has cleared the Servicing Agent it may still be rejected by the Note/Mortgage Holder.

Pre-foreclosure - technically, this term should be used only after a borrower has received an official notice of default that calls the note immediately due & payable. It should not be used just because somebody has missed one payment or because they anticipate being unable to make ongoing payments. This notice often (depending on location) includes information on the redemption and/or foreclosure process.

In foreclosure - A Lis Pendens has been filed. (some variation due to location)

Bid - this is REALTOR terminology that, I presume, originated in the boom years when there were multiple offers on a single property hence creating something similar to an auction. This term is not used banker to banker. It's an auction term. Using it to refer to the sales process would be confusing inside the bank. Offers and/or contracts are the words used banker to banker. I'm mentioning this because it confuses me.

Bankers use precise terminology because many industry words have a legal definition including the word "bid". According to Black's Law Dictionary, bid is an auction term. So, I would never say, "I bid on that listing from realtor.com".

One last note, bankers use the word "repossessed" to refer to personal property. The corresponding word for real property is "foreclosed". My poor brain just doesn't wrap around, "My home has been repossessed".

Thanks for humoring me.

/tricia

Gina,

For real property, a contract must be in writing (in all states, I'm pretty sure), contain specific information, & be signed by both parties.

Real estate contracts must have at minimum:

Date when title passes.
Terms under which title passes
Legal description of the property
Type of Deed
List of improvements
Define any attachments such as personal property that are staying with the real property (swing-set, above ground pool, etc.)
Type of compensation (cash, loan)
Contingencies, if any (financing, inspection, etc.)

Most also include if there's a realtor involved & who's responsible for the commission but it's not a legal contract requirement.

/tricia

How about mortgagor and mortgagee?

I always make an offer on a property, maybe a house or a SFR.
Never made an offer on a home.

I don't think our loose lips will sink any ships here!! LOL

cmarlin,

Duh, yes, of course but it's not mortgagor & mortgagee. Those refer to a mortgage not a real estate contract.

The contract contains the seller(s) & purchaser(s).

The deed is grantor & grantee.

/t

But I thought we were referring to the mortgage?

"Real estate contracts must have at minimum:

Date when title passes.
Terms under which title passes
Legal description of the property
Type of Deed
List of improvements
Define any attachments such as personal property that are staying with the real property (swing-set, above ground pool, etc.)
Type of compensation (cash, loan)
Contingencies, if any (financing, inspection, etc.)"

You forgot one VERY important thing. 'valuable consideration'.
This is the earnest money that goes with the contract.
It is one of those sneaky things that is required to make the contract valid.

The problem is that the listing agents are NOT contracting with the actual decision maker.

The listing agent can't! The seller still owns the house on a short sale. It is not bank owned at that point.

That's why on short sales I ask my buyers if they'd like to close on the house in 2009 or 2010. That usually gets the point across about how short sales and lenders work today.

The problem is that the listing agents are NOT contracting with the actual decision maker.
The listing agent can't! The seller still owns the house on a short sale. It is not bank owned at that point.
Linda1117 We are aware of that.
Do you not agree that this presents a problem? You seem to be defending a point that is not directed at you personally.

This sure is confusing. However, if the property is a short sale then the person living in the house does not own any piece of the property because the amount owed is more than the property is worth - right?? If the person living there has no equity in the real estate how are they able to have any say in the matter? Aren't they essentially just renters trying to break a lease? I really am confused...

The seller still "owns" the home. But the lender has to approve taking less than what's owed (being "shorted"). That's what we're talking about.

Wow, Dave, really good info. I have a realtor hounding the heck out of me about a short sale property listed ridiculously low. I kept telling him I wasn't ready to buy (not even close, like selling this house in 2009!), and he had all these cockamamie schemes for me to 'hold onto' this foreclosure. And he kept saying "low 400's" when the listing said "400". I had no idea what he was pulling other than SOMETHING was being pulled.

Every day it's like there's a new scam out there...

I see that this thread is months old, but what if the property was originally bought at an inflated price just before the market sank? Now the property is listed as a short sale but is much higher than the surrounding comps. Most of the remaining homes (same size or larger by the same builder) sold originally 50-75K less than this "short sale" price just months later.

So instead of having a listing price set well below value, you have a listing price set too high. What then?

Hi Danihoney,

So instead of having a listing price set well below value, you have a listing price set too high. What then?

Then nobody makes any preforeclosure offers to buy...
House goes to the auction block,
Bank buys it out of auction for what they are owed,
*OR*
Bank allows auction bidders to "win" at some bank-determined price near their estimate of market, but less than they are owed.

Cheers,
Dave Donhoff
Leverage Planner

No offers will occur until either a sucker of a buyer wanders in, or the owner of the note lowers the price to match the market.

The note holder does not want to loose money, and will sit on things (loosing money every day) until it becomes painful enough (or someone bails them out by purchasing the note from them).

The problem will then switch to whomever bails them out by purchasing the 'toxic paper' that the note has become.

The property may have become damaged in the meantime, further lowering its market value.

There is not going to be a simple answer or fix.
A lot of people made a lot of money during the run up, but are nowhere to be found now.

At least some of them paid a price when their firms collapsed, but others are still begging at the federal trough for someone to 'do something' to save their hides since they are 'to big to fail.'

It is not going to be pretty since it looks like we have privatized the gains made and will now socialize the losses (that means we ALL will be paying them).

"socialize the losses"

Sadly, I understand that.