Short Sales and Avoiding Foreclosure

Otherwise titled: “If you you don’t know what you’re doing, get out of the way!

Here in the Louisville, Kentucky real estate market, I’ve heard rumors that as many as 1 in 4 listings for sale is a short sale. A scary scenario in any market, but worsened by the fact that most REALTORS don’t know how to market, negotiate and get a short sale closed. Unfortunately, as I work with investors, I’m seeing bank owned properties that were listed for months before the foreclosure auction without selling.

As a REALTOR, we have always been taught to get the highest and best offer possible for our clients. This approach is absolutely the correct one with a regular home seller. In fact, our real estate laws and regulations, as well as the National Association of REALTORS Code of Ethics, require that we always work in the best interest of our client. Thus, in a normal situation, getting the best offer usually is in the best interest of the client.

However, when we have a client that is “upside down” or “under water” with their mortgage, and is, or is about to be behind in payments, then their best interest may be something else entirely. Think of your credit rating as a car wreck, a few dings are not nearly as problematic as having the car totaled. A short sale is like some dings, if it is done properly. The seller will have some late or missed payments in their credit report, but with the help of a real estate attorney who actually understand short sales, there won’t be a deficiency judgement and the loan will be noted as paid. The missed payments will affect the credit score to some extent for 1-2 years, but won’t usually be devestating. However, if the home proceeds into foreclosure, then the credit is effectively “totaled” and it will be at least 7 years before recovery.

What I’m finding is that many REALTORS listing properties that are pre-foreclosure, don’t understand that the key is to get an offer and let the bank decide whether or not to accept the short sale. All to often, the listing REALTOR is still trying to get the best price for their client, not realizing that you have to get an offer to attempt a short sale, and a short sale is ALWAYS better than a foreclosure for everyone involved. Some REALTORS even recommend a seller reject an offer and never even present it to the lender for approval. Let the lender determine what is reasonable to their bottom line, they can always reject it or counter back.

Many agents forget that the seller cannot get any funds at closing, so holding out for a higher offer rarely benefits them. The keys to a successful short sale are: persistence- it’s never easy locating the person with the authority to approve the short sale, patience- banks move at their own pace and it has nothing to do with any time frame written in a contract, preparation- make sure the sellers and the buyers understand this process is slower than normal, and pricing- if you never get an offer you can’t have a sale!

Wholesaling

Wholesaling can be a way to make good money in the real estate investment business, but it is not for everyone. Is it for you? Here is a good resource into what wholesaling is and is not.

If you want to know MORE, you can go to the wholesaling post on my blog as well.