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Short Sale Negotiations

Short Sale Negotiations|Seller Cash Contribution

by Bill Gassett on January 23, 2012 · 10 comments

Negotiation With Short Sale Lenders

Short sale negotiationsIn working in the short sale arena for the last five plus years, I have seen lenders do just about everything when it comes to negotiating short sales with home owners. There really is no “standard” in short sales. The way one short sale file at one particular lender is handled can be totally different on the next.

One of the biggest reasons for this is that every lender has different investors that actually own the loans. There could be more than twenty five different investors that have interests in loans at one lending institution. So for example just because Bank of America may have done something for a home owner in one circumstance does not mean they would do the same thing for another home owner in the exact same circumstance.

More often than not this is because one investor may not have the same needs or requirements as another investor.

There are basically three scenarios for a seller when completing a short sale. They are a:

  • Cash contribution to the lender at closing.
  • Signing a promissory note to pay back some portion of the short sale debt.
  • A combination of these two things.
  • A complete debt removal.

The biggest consideration for most home owners completing a short sale is debt removal. My goal of course in any short sale is to get the most favorable terms and conditions for the seller which is a complete debt removal. Going back five years ago getting complete short sale debt removal was a lot easier than it is today. Many lenders today want sellers to have some kind of  “skin in the game” if they are going to grant a short sale.

In my experience the terms that most home owners get from short sale lenders is very favorable. Home owners are typically asked to bring a cash contribution or sign a note that basically amounts to pennies on the dollar compared to what they owe.

A typical scenario could be a home owner being substantially under water…..for argument sake let’s say $100,000. It would not be unusual for a lender to ask the seller to bring $5000 to the closing and letting the short sale take place. Another possibility if the seller does not have $5000 is to work out a promissory note. Maybe the lender asks for a$15,000 note to be paid back over the next five years at an attractive interest rate. As mentioned previously it could be a combination of these two options. These are just quick examples to give you an understanding of what happens in the short sale world on a daily basis.

There can be circumstances although not real often, where the lender will only accept a cash contribution in order to close. The short sale lender may have this requirement for one of the following reasons:

  • The seller has money in liquid accounts.
  • The seller has not been late with any mortgage payments.
  • The cash contribution is a requirement of waiving the deficiency (debt removal).
  • The seller has a good credit score and are current with other debt.
  • The residence is an investment property.

One of the most difficult parts of going through a short sale as a seller is the long wait involved from the time you get an offer from a buyer until the time you actually begin negotiations with the lender. Sometimes there can be months in between the two. As a seller it is easy to feel in the dark and helpless. There can be times where you will be in this waiting game wondering what the lender is going to require of you and then their request finally comes. They ask you for a cash contribution that you just don’t have.

I have an outstanding short sale attorney that works on behalf of the seller with all of my short sale transactions. In a circumstance where the lender asks for a cash contribution that the seller just can’t come up with the first course of action will be to try to work out an amicable compromise with the lender/investor. This would typically be one of the following:

  • Negotiate to get the cash contribution lowered to something the seller was able to bring to closing.
  • See if the seller can get the funds from a family member or borrow from them.
  • Try to get the lender to accept a promissory note instead.
  • Ask the buyer to pay the cash contribution if lender allowed this to occur.

Short sale cash contributionIn the vast majority of the short sales I have been involved in we have been able to work it out so a compromise was reached and everyone got what they wanted. Should sale negotiations can be difficult at times but if you know what your doing common ground can often be reached.

What would you need to do in the rare instance where a large cash contribution was required that the owner just did not have and the lender would not budge? If all else fails what you would need to do in the scenario above is to put the home back on the market and build in a cash contribution to the lender right into the transaction.

So for example you would add a cash contribution for the lender on behalf of the seller on line 104 of the buyer’s side of the HUD settlement statement. You would also place the same contribution on line 404 of the seller’s side of the HUD as a “Cash Contribution To The Lender”. The  payoff amount would then go to the lender.

This is how short sale negotiations work with lenders. If you know what you are doing you can usually find common ground. Of course there are numerous things to look for in a short sale contract which I have covered in a number of articles I have written.

Other short sales articles worth a look:

If you are need to short sale your home or condominium in Ashland, Bellingham, Blackstone, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northboro, Northbridge, Shrewsbury, Southboro, Sutton, Wayland, Westboro, Whitinsville, Worcester, Upton and Uxbridge MA.

I am successfully completing short sales through out the Metrowest Massachusetts and Worcester County areas. So far, knock on wood, I have a 100% success rate for short sale approval! Short sales are specialized transactions that are critical to have the right Realtor representing you. Do not make the mistake of picking an agent that does not understand how to get to the closing table on a short sale. Nationally less than 30% of all short sales close!

If you are outside of the Metrowest Massachusetts area and need to do a short sale please feel free to contact me and I would be happy to refer you to a Realtor in your location that handles short sales and knows what they are doing! I have referred short sales to other Realtors all around the country.

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About the author: The above Real Estate information on Short sale negotiations – seller cash contributions was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 25+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service the following towns in Metrowest MA: Ashland, Bellingham, Blackstone, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northboro, Northbridge, Shrewsbury, Southboro, Sutton, Wayland, Westboro, Whitinsville, Worcester, Upton and Uxbridge MA.

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Realtors Should Not Let Short Sale Investors Negotiate With Lenders

by Bill Gassett on September 1, 2010 · 25 comments

Short sales in Massachusetts

The reason why Realtors handling short sales should not let a short sale investor take over negotiations with a lender may not be fairly obvious.

If you are a Realtor who works  short sales or are thinking about doing them here is where you really need to pay attention. Without a doubt we live in a very litigious society today. There are undoubtedly going to be lawsuits that come out of many of the short sale transactions that are taking place or should I say don’t take place.

When you sign a listing contract to represent a seller they are YOUR client. YOU are THEIR trusted adviser and advocate. You need to be thinking about doing everything possible that benefits THEM. To put it more bluntly a Realtor owes a seller undivided loyalty, reasonable care, disclosure, confidentiality, accountability and obedience to lawful instruction.

The same holds true when it is a short sale transaction. The rules of the game don’t change!

I have found through reading various Real Estate forums that investors don’t understand that we are held to different legal standards than they are.

What do you mean by that Bill? Simple…when a person needs to short sell their home and they hire me they can expect that I am going to do everything that I normally do for every other seller. My goal is to get my client the best terms and conditions.

Once I get a good offer from a buyer that has a strong probability of closing, an attorney, who is part of my team, takes over the negotiations with the lender. The attorney I use is very good at what he does. This is part of the reason why a seller would hire me to complete their short sale. Most Massachusetts home owners in need of short selling their property have done their research and selected me because of my track record with closing short sales.

When an investor approaches you about making an offer they will undoubtedly want to negotiate the deal for the seller. Well guess what the seller didn’t hire an investor to get them out of the financial mess they are in… they hired YOU!

If you go along with this arrangement and the transaction goes sour for any reason causing the seller to be foreclosed on guess where the fingers are going to be pointed. Do you have a mirror handy? This is akin to letting a buyer’s agent negotiate for the seller!

I can already hear the seller’s attorney in court:

The Realtor said this was a good idea and told you should let the investor take over the short
sale negotiations Mrs. Jones”. Is this correct? Yes sir it is.

“Didn’t you hire this Realtor and his team to help you with the short sale mam”? Yes sir I did.

“Did the Realtor advise you to work with this investor mam”? Yes sir they did.

“Do you know this short sale investor Mr. Gassett?” No sir I do not.

“Mr. Gassett do you think the investor was working on behalf of the interests of your client”

Well Um Err they told me they were going to do everything in the best interests of Mrs. Jones.

NO THANKS! I certainly don’t want to find myself in court and neither should you. Do yourself a favor and don’t end up looking like the dude below.

Inexperienced short sale Realtor

If you are a consumer and thinking about doing a short sale and have NOT listed your home with a Real Estate agent I want to make something perfectly clear…There are lots of very good short sale investors that know what they are doing and can accomplish the same thing a qualified Realtor or attorney can in getting a short sale approved.

Like any other financial decision you make in life you should be doing your due diligence when deciding whether or not to work with an investor and their company. Checking out their track record and getting a list of references probably would be a very good idea.

If something sounds fishy or too good to be true it probably is. You want to be careful you do not get caught in short sale fraud. There have been cases recently where both investors and Realtors have been caught in shady deals that are both illegal and immoral.

An investor of course is going to be looking to buy your home as cheaply as possible as their goal will be to turn around and re-sell it for a profit. While getting the best price for an investor is going to be key for them moving forward, a reputable one should also be looking out for getting the best deal for YOU which includes negotiating the lowest deficiency possible.

In many short sales today the lender is going to ask you to pay back something. It will more than likely be pennies on the dollar but the chances of a seller walking away Scott free have grown slimmer.

If you hire a short sale investor to negotiate your deal the debt removal part of the transaction becomes essential. Short sale debt removal becomes critical because the last thing you want is a someone chasing you down years later for a deficiency.  A number of lenders are selling unpaid mortgages to collection agencies which in some states have years to come after you for a collection of this unpaid debt!

There are some differences in working with a short sale investor vs a short sale Realtor. A Realtor is going to be far more concerned about getting an offer that makes financial sense to a lender. In other words is the offer presented to the lender going to be accepted because it is close enough to market value. As previously mentioned, an investor is going to want to buy the home as cheaply as possible.

One of the biggest reasons why many short sales never reach the closing table is because the seller accepts an offer that is too far under market value and the lender rejects the contract denying the short sale.

Rejected short sale offer

Most short sale investors are not going to make their 1st offer to the lender the best one. They are going to be looking to negotiate for the best deal for themselves.

As a seller you need to be confident in the fact that an investor will raise their offer to a point that the lender will accept it.

Despite what all investors claim there is a greater chance when a profit margin is involved that a lender will not accept their offer. Do you think lenders like leaving money on the table?

Realtors should also be doing the same. If the seller accepts a low ball offer and submits it to the lender for approval and the buyer is not willing to come up you have wasted a lot of time and possible condemned the seller to a foreclosure.

Just because an investor tells you they will increase their offer if necessary does not mean they will come to an agreement with the lender. After all they are looking to make a profit which creates a gap between the market value and where they are trying to purchase the property at.

I guess you really need to ask yourself if you want a buyer negotiating for you?  My advice of course  would be to work a qualified Realtor or attorney when doing a Massachusetts short sale.

If you are needing to complete a  short sale of your home or condo in Ashland, Bellingham, Framingham, Franklin, Grafton, Holliston, Hopedale,  Medway, Mendon, Milford, Hopkinton, Southboro, Westboro, Natick, Northboro, Northbridge, Whitinsville, Upton, Uxbridge, Shrewsbury, Worcester, or Douglas Get in touch! I would love to interview for the chance to represent your best interests.

I am successfully completing short sales through out the Metrowest Massachusetts area. So far over the last three years, knock on wood, I have a 100% success rate for short sale approval! I work hand in hand with a local short sale Real Estate attorney who knows how to get short sales done!

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About the author: The above Real Estate information on Realtors should not let short sale investors negotiate with lenders was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 24+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service the following towns in Metrowest MA: Ashland, Bellingham, Blackstone, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northboro, Northbridge, Shrewsbury, Southboro, Sutton, Wayland, Westboro, Whitinsville, Worcester, Upton and Uxbridge MA.

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