Short Sales: Different Perspectives
Articles from The Massachusetts Focus
Newsletter of Stewart Title Guaranty Company, Massachusetts Offices
Spring 2008, Volume 7, Number 2
Short Sales: Different Perspectives
by Craig J. Celli, Vice President and State Manager
In today’s market there are an increasing number of transactions called short sales. A short sale occurs when the proceeds from a purchase transaction are not sufficient to pay off the lender of record in full. Generally, short sales are relegated to owner-occupied residential properties. The lender of record, the mortgagee, upon review of a purchase and sale agreement, closing instructions, estimated settlement statement, appraisal and other documentation as the lender may require, may agree to accept a pay-off that is less than the amount actually owed. In such transactions, the seller will net zero proceeds as all proceeds, less normal costs and expenses as approved by the lender, will be paid to lender at closings.
The Lender’s Perspective
From the lender’s perspective, a short sale saves many of the costs associated with the foreclosure process. Such costs are attorney fees, a possible eviction process, delays that could result from a borrower’s bankruptcy, damage to the property, and costs associated with resale. In a short sale the lender is not made whole, but is able to receive as much as what is owed in a much shorter time. In short, the lender cuts its losses. The investor buyer, the realtor and the present owner have the task of making the lender understand that it will fare better to accept less money now.
The Buyer’s Perspective
More often than not, the buyer in a short sale is an investor. There are investors that target sellers who might qualify for a short pay. Often investors are found at foreclosure auctions where properties are sometimes mistreated and damaged. Short sales can be finalized very often before an owner goes through a foreclosure process which occasionally results in a disgruntled owner not caring for the property. Investors are generally very knowledgeable about the short sale process. Investors are and should be part of the negotiations with the lender.
The Seller’s Perspective
A seller should hire an attorney to negotiate with the lender. Negotiating a short sale with a lender can be a very difficult process. It is generally very difficult to find a bank officer who even has the authority to accept a short sale pay off. If the seller is contacting the lender, he or she can expect the process to involve a lot of waiting on hold and being transferred from department to department in a seemingly deliberate attempt to confuse and dishearten the seller from negotiating a short sale. Even if the seller finds the right person, they are expected to provide proof and documentation that they are not likely to be familiar with. Generally this is a very difficult task for anyone to take on by themselves. For all these reasons, the seller’s perspective should be simple: Get an attorney.
The Realtor’s ® Perspective
Considering the perspectives above, it is important for all Realtors® to be knowledgeable on the short pay process from the very beginning to the end. In the current market, and likely over the next few years, short sales will be quite common. By being confident and knowledgeable about the process, a realtor can seek out many distressed sellers and match them with many intelligent investors to obtain listings and sales.
The Attorney’s Perspective
The attorney in a short sale transaction is considered the “Quarterback.” The Attorney will be central figure who will be working with his client, the seller, the Realtor® and negotiating with the lender. Further, if the attorney is successful in negotiating the short sale price and the amount owed to the lender, the attorney will have to work with the closing attorney at the time of closing. The attorney is the best person to work with all parties. When a seller works with an attorney, the perception is that the seller is taking the process seriously by engaging a third party to make “the deal” happen. The lender feels that it is likely their best chance to receive as much as what is owed to them as possible. The buyer/investor should have the confidence that because the seller retained counsel that his or her time spent on the process will not be in vain. It is also an opportunity for the attorney to show the realtor yet another quality service he or she can provide and hopefully can result in more business down the road.
Stewart Title will be conducting a Short Sale webinar in May 2008 that will discuss lender requirements, qualifying a lender, securing a buyer, working with the Seller, gathering all needed documentation, approaching the lender, the closing and short sale do’s and don’ts. Stay tuned.
Stewart Title of California contributed greatly to the information in this article.