The Four Rs of Short Sales

8/6/2019 The Four Rs of Short Sales

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"The Four R's of Short Sales...and MoreThe Transparent Approach to a Real Estate-Related Crisis"

Homeowners... Recovering and regaining control

Q. What are my options as a home seller when my property is in or heading toward default?

A. In the event that you have been delinquent in paying your mortgage or anticipate that you will notbe able to make payments moving forward, your options will vary based upon several factors or

variables that are specific to you and your property. Always remember that each possible resolutionwill be evaluated on a case-by-case basis by all parties involved. When considering your options, youshould take into account:

• the amount of equity you have in your property compared to the outstanding loan balance• the additional financial resources you may be able to bring to bear• whether or not you live in a homestead state, and the nature and amount of the homestead exemption• and/or the amount of private mortgage insurance you have.

All of these factors should be taken into account along with many other variables and specialconditions.

The most important decision you need to make is to "make a decision." Typically, when homeownersavoid confronting the serious lifestyle and financial consequences of defaulting on their mortgage,they end up with a significantly more deleterious outcome than they would have, had they takencharge of their own destiny while they could.

Once you decide to take action, we recommend that you contact a lawyer and a real estate agentqualified to assist with your special real estate needs. Top 5 in Real Estate members are not justcommitted to helping you pursue the potential option of a short sale, but to encouraging you to fullyconsider all other options that may be available.

Early on in the potential foreclosure process, all homeowners should not only contact an attorney, butalso research all potential guidance and assistance available from the government, including the U.S.Department of Housing and Urban Development (HUD). HUD's Guide to Avoiding Foreclosure maybe particularly helpful. HUD's toll-free telephone number is (800) 569-4287. Not all homeowners,however, can qualify for certain HUD programs.

Whatever guidance you seek as a homeowner, we recommend, at a minimum, that you also carefullyconsider each of the following questions and answers:

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Questions. What is a better or more likely outcome for me and why?

laim?ent?

f foreclosure?• A short sale or a bankruptcy?

and all of the above-mentioned options pursued by homeowners should take intoccount their:

e financial circumstancesle goals

impact each available option might have in comparison to

all other options being considered

nsure that the lender agrees to forego suing for any monies that are written off due to the short sale.

st pr vide. How important is this component in causing the lender to approve

to work with a qualified attorney in the area of pre-foreclosure/foreclosure law

uring this process.

es of hardships would a lender generally consider conducive to a short sale

ith anindividual lender to determine the duration of the hardship, as lenders are unique in this regard.

• A short sale or a foreclosure?• A short sale or a repayment plan?• A short sale or a forbearance plan?• A short sale or a loan modification?• In the case of an FHA loan, a short sale or a partial c• A short sale or a short sale/assumption agreem• A short sale or a deed-in-lieu o

Answers: Anya

• individual present and projected futur• short- and long-range lifesty• concerns over credit rating• desire to remain living in their present home• a complete understanding of the

In order to best contextualize or prioritize one's various opportunities or limitations with all otheroptions, it is advisable that an attorney or other suitable counsel be engaged. Such counsel is vital inorder to properly weigh all legal, financial, tax and lifestyle implications surrounding each option.Since this brochure principally focuses upon the subject of short sales as just one alternative, it isimportant to note that short sales usually benefit home sellers because they not only stop mortgageforeclosure, but typically prevent the lender from suing for deficiency. Deficiency refers to thedifference between the outstanding loan amount and what the net proceeds are from the sale of thehome, or in some cases, simply what the proceeds are that the lender receives from the sale of thehome. During their short sale negotiating process, it is vital that homeowners have their attorney

e Q. Within the short sale packet presented to the lender, there is a hardship letter that

homeowners mu o

the short sale?

A. It is absolutely critical that the homeowner be able to document that they do not have the incomeor necessary assets to continue making payments on their home. Homeowners must be meticulouslyhonest in documenting and presenting their "hardship case" so they do not implicate themselves inmortgage fraud; mortgage fraud results from inconsistencies between what the homeowner is nowrepresenting compared to the information provided at the time of the original mortgage application.This is why it is vital

d Q. What typ

agreement? A. In the context of consideration for short sale approval, "hardship" is not defined by law. As such,there is no one definitive definition upon which you can rely. One would, however, anticipate that alender would expect a hardship to result from the loss of job or salary reduction, divorce orseparation, debilitating illness, medical bills, business failure, excessive debt, mortgage paymentincrease or the recent loss of a close family member, such as a child or spouse. Consult w



Q. What are the tax consequences of a short sale? A. The tax consequences for individual homeowners regarding short sales are different dependingupon your financial situation. For that reason, it is critical to consult with a Certified PublicAccountant.

Q. What is the Mortgage Forgiveness Debt Relief Act of 2007?

A. Prior to the implementation of this act, the law required taxpayers to include discharges of mortgage indebtedness as income for the calculation of income tax. This Act provides an exclusionfor discharges of some types of mortgage indebtedness. Check with your tax advisor early on as towhether your transaction will qualify for income tax exclusion.

Q: What effect will each alternative have on my immediate, mid-range, and long-term credit? A: There is significant confusion regarding the precise and relative proportionality surrounding howvarious pre-foreclosure/foreclosure and bankruptcy options affect one's credit score. It is thereforeadvisable that all property owners first check with their lender(s)', credit bureaus, future lenders,government agencies, and an attorney in order to best gauge how each prospective resolution maypotentially affect their future credit rating.

Credit rating impact should also be evaluated contextually by considering the role of your credit

rating regarding future financial and purchasing plans.

Q. How do I know if my property and I may be considered for a short sale?

A. Eligibility for a short sale resolution is determined by your lender's short sale policy. Your lenderwill also direct you as to what you must do to comply with their process and procedure. You caneither contact your lender directly or authorize an attorney, real estate agent or other representative tocontact them on your behalf.

Q. If a lender agrees to the short sale option on my property, can the bank still proceed with a

foreclosure?

A. The foreclosure could be considered as a separate and distinct action taking place, even though the

lender has agreed to the short sale proposal. This can easily occur when different departments of thesame lending institution are seeking different outcomes, or simply because the bank, after agreeing toa proposed short sale outcome, but before signing a contract, believes that foreclosure would representa more favorable outcome for the lender.

The submission of a short sale package/kit to the lender does not automatically stop a foreclosureaction. Once a lender initiates a foreclosure action, the homeowner should consider that the lenderwill most likely retain this position until the lender has a signed contract in hand, has agreed to theshort sale proposal, and has closed on the sale of the property.

At the time the lender agrees to the short sale proposal, the lender may or may not choose to terminate

or postpone the foreclosure. A foreclosure may also proceed in the case of subordinate lien holdersnot having agreed to waive their lien on the property.

Because of the multiple stakeholders involved, and the complex nature of the regulatory environment,qualified, licensed counsel can be critical in taking steps to prevent a lender from not followingthrough with the short sale process, especially in the case of a lender who has the intention of optingfor a foreclosure-based resolution.



Q. How would I initiate the short sale process? A. To initiate the short sale process, contact your lender(s). Typically, the department to contact isyour lender's Loss Mitigation Department.Either you or your authorized representative needs to ask the lender for a short sale package or kit.Most lenders will make their particular processing forms and procedures pertaining to their requiredshort sale documentation available to homeowners.

Unlike what many people believe, some lenders will also allow you to apply and get approval for ashort sale even when the homeowner has never been late or missed a mortgage payment. Please notethat lenders will typically only consider a short sale after the borrower has: missed two mortgagepayments; has no means to continue paying the mortgage; provided all the necessary financial andhardship documentation to the lender; agrees that they will not derive any proceeds from the sale.

Q. Should I contact a real estate agent? A. Absolutely. But before selecting a real estate agent to represent you, determine whether or not theyare knowledgeable about preforeclosure, foreclosure and bankruptcy options. Your agent should notbe giving you advice regarding your personal financial situation.

Any real estate agent who asserts that he or she is prepared to assist you as a homeowner in a potential

short sale outcome must also be willing to follow the specific administrative procedures of theparticular lender involved. In addition, the real estate agent should also acknowledge that theyessentially confine their guidance to determining the property's value and how to best market theproperty, versus advising the homeowner on the best preforeclosure/foreclosure resolution.

Q. Should I contact an attorney? A. Absolutely. We recommend that you contact an attorney with the understanding that the attorneyneeds to not only be well versed in real estate law and foreclosure law in your particular state orprovince, but also needs to be a proven negotiator on behalf of their clients. Not all short sales orother pre-foreclosure or foreclosure options are structured alike. Therefore, the role of a highlycompetent attorney in such matters-one who can skillfully negotiate on your behalf-can make a world

of difference.

Q. How would multiple liens on my property impact short sale approval?

A. Each lender must recognize how it is in their best interest to approve a short sale resolution versusa more costly and protracted alternative. Here again, an attorney/lawyer or real estate agent whopossesses experiential knowledge in this particular multiple-lien scenario can be instrumental indeveloping a multi-party resolution strategy satisfactory to all.

Q. Am I responsible to continue to make mortgage payments if I have intentions of applying for

a short sale on my property? A. Unless you have received information to the contrary from the lender in writing, you are

responsible to continue to make mortgage payments.

Q. As a homeowner, what incentive do I have to assist in the sale of my property if I am not

going to receive any proceeds from the sale? A. The authors of this publication believe that homeowners first and foremost have an ethicalresponsibility to expend the necessary effort to support as high a sales price as possible-even thoughthey will not experience a financial gain-when expecting the lender(s) to forgive any and all of thehomeowner's outstanding mortgage debt.



We also believe that the higher the realized sales price, the more likely the lender will be in granting ashort sale outcome for the homeowner and possibly either fully or partially waive a deficiency judgment. Moreover, we also advise homeowners to be wary of any real estate agent who, for the sakeof facilitating a guaranteed sale in order to collect a commission before a property is foreclosed(ruling out any possibility of a commission), demonstrates a less-than-professional marketingcommitment. Such real estate agents will often justifies this lackluster attitude by saying to ahomeowner, "No matter what the home sells for, it really doesn't affect your pocketbook-only thelenders." This disregard for marketing on behalf of some real estate agents seeking to facilitate a shortsale at all costs (but not to them) is one that lenders readily recognize.

We find that this unprofessional approach to real estate marketing, notwithstanding the specialcircumstances surrounding a proposed short sale outcome, is to the detriment of well-intentionedhomeowners who are hopeful of gaining lender cooperation. Lender cooperation is, without question,influenced by how honorable they believe both the homeowner and the real estate agent are, despitethe difficult circumstances facing the homeowner and the challenging marketplace facing the agent.

Q. Does a "Listing Agent" represent me (as the homeowner) or the bank if I have intentions of

gaining short sale approval from the lender? A. The Listing Agent does not represent the bank.

Q. Is there a real estate commission paid in a short sale and, if so, who pays it?

A. Like all commissions, this has to be negotiated. Typically, the commission is paid from theproceeds of the sale. In the case of short sales, the home seller does not typically pay the commission.This is another incentive for a home seller to pursue a short sale remedy and use a qualified real estateagent. Moreover, many lawyers, although representing home sellers, are able to have the lender paytheir fees. This makes it even more imperative that every homeowner considering any pre-foreclosure/foreclosure possibility-but especially where a short sale is the desired outcome-contact anattorney immediately. Homeowners should also encourage their attorney and their real state agent tomeet as a group for the purpose of creating an effective overall short sale and marketing strategy.

Q. On average, how long does a short sale process take? A. The time period will vary based upon circumstances, although the approval process and time toclosing, in many/most cases, is longer than that associated with the sale of a property in a non "shortsale" situation.

Q. Which process has a more adverse affect on my credit rating: short sale: foreclosure;

bankruptcy; or deed-in-lieu of foreclosure?

A. It is critical that homeowners, either personally or through a representative, research theirindividual situation with the various agencies that determine credit ratings. Be careful of categoricalrepresentations and sweeping generalizations regarding the credit rating consequences of short sales,foreclosures or other homeowner options. There exists wide-spread confusion, oversimplification, and

inadequate guidance presently being offered, especially by individuals purporting to be experts.

Q. What is a deficiency judgment? A. A deficiency judgment is a court order authorizing a lender to collect part of an outstanding debtfrom foreclosure and sale of the borrower's mortgaged property or repossession of property securing adebt after a finding that the property is worth less than the book value of the outstanding debt.

Q. Should I take the word of my real estate agent if he or she tells me that I probably will not

have a deficiency judgment, or should I have an attorney try to have this guaranteed as a



condition of the short sale agreement?

A. Consultation with legal counsel on this matter is highly recommended.

Q. Am I more likely to be responsible for the deficiency judgment under a short sale or a

foreclosure? A. If we respond to this question with the belief and understanding that the waiver of a deficiency judgment would be a binding element in the short sale proposal and subsequent agreement, then theanswer, of course, is that the homeowner in default of their mortgage would more likely beresponsible for a deficiency judgment under a foreclosure. We recommend, however, that you consultwith qualified legal counsel in this regard and investigate specifically whether or not steps can betaken to ensure that a waiver of the deficiency judgment can or cannot be incorporated into a finalsettlement. You should also determine whether or not the lender is likely to call upon a collectionagency after the closing to pursue you for any outstanding sums due the lender. If you sense that anattorney should be representing your interests, we believe you instincts are correct.

Q. When is a bankruptcy preferable to a short sale or to a foreclosure? A. This multiple choice question can only be answered after exhausting all possible outcomes as theyrelate to individual circumstances along with the meticulous advice of legal counsel.

Q. How important is the short sale package or kit when applying for a short sale to a lender?A. Indispensable!

Q. On my own, can I prepare a short sale package/kit, and if so, how would I go about doing it? A. The short answer is yes, you can prepare your own short sale proposal and submit it to your lender.Some lenders may even assist you in the process. Just like preparing your own taxes, however, youmight need help in this critical process. Real estate agents experienced in short sales understand thatthe bank will want to find out what efforts have been made or could be made to market the propertyfor the highest price and best use of the property. In addition, most lenders will require Broker PriceOpinions and or Competitive/Comparative Market Analysis to determine benchmark pricing.

Q. Will lenders tell me what I need to have prepared in a short sale, or do they only make thisinformation available to real estate agents and attorneys?

A. While it is advisable to have a real estate agent assume this very time-consuming andadministratively complex responsibility, homeowners themselves are recognized by lenders as beingcapable of dealing with short sale matters themselves. Lenders, however, are very vigilant regardingthe information they require pertaining to marketplace pricing and related real estate information, andrely heavily upon the expertise of high-caliber real estate professionals.

Q. In selecting a real estate agent, when the prospects of a short sale are desirable, is it more

important to choose a real estate agent who is very competent in overall real estate sales and

marketing, and not as knowledgeable in the short sale process, or is it better to select a real

estate agent knowledgeable in the short sale process, but very inexperienced or ineffective inreal estate sales and marketing?

A. Obviously, home sellers should want a real estate agent who possesses significant expertise inshort sales and in real estate sales/marketing. The greatest emphasis, however, should be placed uponselecting a real estate agent who is highly competent in the areas of marketing, merchandising(staging), negotiating, networking and information technology. The lender-required processes andinformation, although critical, represent more of a service. The aforementioned skills areindispensable in putting forth the best and most credible effort regarding the sale of the property.



Lenders can discern the difference between real estate agents who only represent pre-foreclosurestrategic advice and assistance-ee.g., the performing of the required administrative tasks-from leadingreal estate agents who can perform the required administrative tasks and who possess short saleacumen while representing world class real estate marketing-related skills.

Lenders . . . Recoup . . . To recover all or part of a loss

Q. When a real estate agent deems it necessary to alert cooperating real estate agents that their

listed property is a potential short sale, so that the buyer does not unknowingly enter into a

conditional negotiating process, how does this announcement prior to a lender's consent impact

the marketing, property value, and ultimately the negotiating position of the lender?

A. This practice of announcing a potential short sale "Sale," before a lender agrees to the short saleconditions is considered by many real estate practitioners who represent home sellers as a method of undermining the integrity and market value of that particular property.

Clearly, one can argue that by not providing this potential status to prospective buyer agents and thus,their clients, deprives them of a form of disclosure; this is why great debate exists surrounding thehandling of a short sale situation.

Q. Should a lender do business with a so-called Short Sales Specialist who strategicallyadvertises "Stop Foreclosures" to homeowners, when their intended approach is either most

likely or solely a short sale outcome? Does the practice of labeling properties as possible short

sales before they officially enjoy short sale status undermine the value of all homes within that

marketplace? A. We leave it to lenders to determine how they respond to the growing practice of homes for salebeing labeled as members of either the troubled or the distressed property category, even though theproperty itself, and thus both the homeowner's and the bank's potential proceeds, is not troubled ordistressed, but rather the homeowner and the lender. By categorizing properties as being distressed ortroubled, it essentially undermines the underlying loan that supports the market value of the property.

Q. How can a lender best identify evidence within a short sale package/kit that the listing agenthas placed much greater emphasis on supporting a lower short sale agreed-upon price than they

have upon marketing for a greater selling price? A. Lenders should respectfully challenge any real estate agent who supports any proposed sales priceor offer as to the appraisal method they employ along with the specific and customized off- and onlinemarketing methods they have designed for the subject property. In other words, evidence-basedmarketing versus merely evidence-based pricing.

Q. How can a lender best determine how dedicated a listing agent truly is to not just "Selling" a

home but selling a home for more, in a climate where almost all low offers can be justified or

rationalized as representing the best or the only possible offer that could be brought to the

lender? A. Simply ask the real estate agent what methods they employ to market homes for more. Otherwise,attention might be diverted to how they sell more homes versus how they sell homes for more. This isa powerful distinction that lenders must demand real estate agents respond to in order to bestdetermine if the offer, which is part of the short sale kit, represents either optimum marketing orinstead a convenient rationale for a significantly lower price.

Q. What can lenders do to prevent the real estate industry from becoming a "foreclosure-

prevention" industry instead of an industry of world-class marketers dedicated to bringing

back property values for both presently challenged and future home sellers?



A. Again, by communicating to the entire local real estate marketplace that any short sale packetbeing presented for short sale consideration must include an evidence-based marketing overview of the property, and not just a dazzling display of pricing data supporting a self-fulfilling prophecy of lower prices.

Q. When should a lender who holds a subordinate lien on the property being considered for

short sale agree to or choose to resist a short sale resolution? A. It would be presumptuous to suggest that lenders, given what is financially at stake for them, havenot carefully considered the bottom-line implications of each and any lien position they hold as itrelates to short-sale resolution and all other options available to the lender(s).

Q. When properties are promoted as being distressed or as potential "short sales," does such

labeling stigmatize not only the subject property but all other properties, and does this practice

potentially damage the lender's greater loan portfolio as well as the asset value of all

homeowner properties? If so, should lenders communicate their concern to the real estate

industry regarding how properties upon which they hold mortgages are being marketed given

our economic climate? A. We believe lenders should make it known to the real estate industry that certain marketingpractices, which seem intended to exploit the current marketplace, are not being overlooked and will

influence which real estate agents are selected to represent bank-owned/REO properties.

Q. Since a home seller does not stand to receive any money from the short sale, how can they

best be motivated to enthusiastically support a marketing effort designed to realize an optimum

sales price of their property? A. As we responded to this question in the section for homeowners, the authors of this publicationbelieve that homeowners first and foremost have an ethical responsibility when expecting thelender(s) to forgive any and all of the homeowner's outstanding mortgage debt to, in return, expendthe necessary effort to support as high a sales price as possible (even though there is not a financialgain to the homeowner). We also believe that the higher the realized sales price, the more likely thelender will be in granting a short sale outcome for the homeowner and possibly either fully or

partially waiving a deficiency judgment. Moreover, we also advise homeowners to be wary of anyreal estate agent who-for the sake of facilitating a guaranteed sale in the hopes of generating acommission before a property is foreclosed (where they might not gain a commission)-demonstrates aless-than-professional or lackluster marketing posture or commitment. Such agents justify this attitudeby saying to a homeowner, "No matter what the home sells for, it really doesn't affect yourpocketbook, only the lender's."

This less-than-professional marketing commitment on behalf of some real estate agents seeking tofacilitate a short sale at all costs (but not to them) is one that lenders readily recognize. We find thatthis unprofessional approach to real estate marketing, notwithstanding the special circumstancessurrounding a proposed short sale outcome, is to the detriment of well-intentioned homeowners who

are hopeful of gaining lender cooperation. Lender cooperation, without question, is influenced by howhonorable they believe both homeowners and real estate agents are in spite of the difficultcircumstances facing the homeowner and the challenging marketplace facing the agent.

Q. Should a lender be concerned when a real estate agent is representing both sides of the

transaction against the backdrop of a seller desperately seeking to avoid foreclosure and a

bank's predisposition towards short sales, versus the protracted, costly and legally cumbersome

foreclosure/REO alternative?

A. Yes, lenders, more than ever, need to be circumspect regarding the individual circumstancessurrounding how their mortgaged property is being recommended to "closure."



Buyers . . . Reap . . . Create Reward from the Benefit of A Short Sale

Before buying a property marketed in a "short sale" context, consider the following:

Q. How much less should I offer on a property once I learn that the real estate agent has

"labeled it to fellow agents" as a possible short sale, even though the bank hasn't yet classified

the property in such a fashion? A. For the same reason that it most likely is not in the best interest of a lender or the ultimate salesprice of a property when it is marketed as being "under duress," it oftentimes is to the significantbenefit of the buyer when a property is being labeled as a potential short sale.Any offer on any property in any marketplace should be made only after the buyer satisfies the needto thoroughly research what properties are selling for, how long properties are taking to sell, whichway prices are trending, and to the degree possible, what pressures to sell might be facing theowner(s) of the property in question.

Along with this approach to a proper pricing/offer strategy, it is recommended that the buyer be asaggressive as possible and anticipate an inevitable negotiating process. To that end, if a property islabeled as a potential short sale that might enjoy a stronger negotiating position, that will be reflectedin your offer. At the same time, it is unwise to risk a great sales price (especially when one is seeking

the lifestyle benefits of a particular home for sale) by pushing too hard and too unrealistically.

It is recommended that when packaging the offer for a property that is being advertised asrepresenting challenging circumstances, that the buyer make his/her case by understanding theposition of the lender regarding a short sale outcome versus foreclosure or bankruptcy. The key is tonot appear exploitive, but rather to appear as one who is willing to make a prudent decision, evenwhile most others remain on the sidelines.

Q. Do some real estate agents make it a practice of building in preprogrammed or time-interval-

based price reductions, and if so, can I assume that the longer I wait, the greater the discount I

will enjoy?

A. Some agents do build in strategic price reductions to come at specific intervals and they see it astheir earnest attempt to help their homeowner-client win the race against a foreclosure.

Other agents, however, view this systematic concession as a lazy method that doesn't requireaggressive marketing (which is self serving to the agent who does not want to risk losing a sale beforea foreclosure), even if it means contributing to the downward spiral of home values. If possible,buyers should try to determine if a particular real estate agent makes it a practice to systematicallyinclude interval-based price reductions when considering how to best "time" their offer, so itcoincides with the agent's willingness to concede to a lower price as a foregone conclusion.

Q. As the contract is subject to third-party approval, who is the seller of the property and with

whom am I doing business?A. You and the agent representing you are doing business first with the home seller and marketingagent regarding your offer, but must realize that ultimately the business decision will be made by thelender(s), although the home seller does not have to agree with the lender's terms for the short saleapproval.

Q. How can I, as a buyer, best determine whether or not the seller of a so-called potential short

sale property significantly overpaid when they purchased the property? A. Each property-although conveniently considered a comparable to other properties-is trulydistinctive, and therefore, all pricing is subjective. Consequently, in order to best understand the



relative value of a property and whether or not somebody overpaid or underpaid requires marketplacesophistication and savvy. The necessary marketplace information that is required to make thedetermination of what a property should have been bought for requires more than Internet-basedresearch and statistics, but a thorough understanding and appreciation of the physical, exterior andinterior condition and esthetics of a large number of properties that fall within the same range as theproperty being considered for purchase. We believe that an experienced real estate agent (like a Top 5in Real Estate Network® member) can help buyers save tens, if not, hundreds of thousands of dollarsby assisting them in determining how to best buy property in a financially challenged marketplace.

Q. Since short sale properties are expected to be purchased in as-is condition, given the lack of

financial interest of a home seller regarding the outcome of their property, and considering the

potential adverse physical effect that these circumstances have on the value of the property, how

late in the negotiating process should my appraisal be in determining market value?

A. Any buyer for any property should be willing to pay for all relevant and necessary inspections andappraisals of the property, and have a pre-closing walk-through contingency as part of the salesagreement.

You should consider making any offer subject to the existing lender's acceptance to include not only ageneral home inspection contingency, but also, where applicable, satisfactory inspection reports for

lead-based paint, natural hazard disclosure, pest/insect report, underground storage tank, septic/sewerinspection, well water and seller (conditions) disclosures. All of these contingencies should be inaddition to the typical mortgage, appraisal and title contingencies.

Q. How should a buyer negotiate with a lender on a short sale property when the lender

typically is not subject to property condition disclosures and the seller, given their financial

situation, may not be a viable party regarding future recourse? A. Buyers, especially with certain types of homes (e.g., age and condition), should most definitelyinclude disclosure concerns as they prepare and present their offer to the lender and as an overall partof their overall negotiating strategy.

Q. How can I find out about subordinate liens or other claims to the property, and how will thisimpact my negotiations and the time necessary to close?

A. Ask your agent to have a title search conducted; it will include all the necessary informationregarding lien holders. This should guide you regarding the estimated time it will take before aclosing might be possible. Further research into the short sale practices of each lien holder, and theinstitutions they represent, might also reveal their relative willingness to accept lower offers. It is alsorecommended that the buyer title the property with title insurance, although without a strategy toremove all liens, no closing will be possible.

Q. Please explain what options, other than a short sale, the primary lien holder has with regard

to the disposition of this property.

A. The other options include deed in lieu, loan modification, forbearance and foreclosure.

Q. When is a short sale the bank's better option, with regard to the disposition of the loan on

this property?

A. When a lender deems that all other options are either too costly or carry with them a high level of financial uncertainty, the short sale represents closure and finality.Lenders also often favor short sale resolutions because they are not in the business of, nor do theyhave expertise regarding, managing or owning properties. Moreover, short sales are typically lessexpensive for the lender than the foreclosure process.



Q. Where do you see my opportunity to reap a reward in the purchase of a property that is

hopeful of a short sale resolution? A. When your offer represents a quicker, cleaner and clearer financial outcome to the lender than theother options available to them.

Q. Under what circumstances would the bank reject or not consider my offer to purchase a

short sale property?

A. The offer will not be accepted when it is considered to be either too low or not in the best interestof the lender. Mortgage preapproval, if possible by the lender, or a full-cash offer can eliminate thelender's concerns regarding last-minute credit issues. A high loan-to-value ratio will also offer theseller/lender a higher level of comfort, especially if their institution will be the mortgagee for thetransaction.

Q. Strategically speaking, what can I do to best ensure the bank's acceptance of my offer to

purchase the property? A. From the lender's perspective, the greatest qualities of the short sale resolution are closure andfinality. By accepting your offer, even if the price is lower than market value, due to the situation, thelender can close the file and move on. To best ensure a smooth transaction, do not muddy the waterswith contingencies and time frames inconsistent with conventional closing times. The lender will

likely need to take time to deliberate prior to accepting an offer. Once the offer is accepted, anticipatethat the lender will want to close within 30 days. Consider including language in your proposal andcontract that provides the lender with the time they need to review the offer and reach a decision.Then include an iron clad means of closing (i.e., paying for the property on your part). When youremove obstacles in any real estate transaction, you pave the way to a smoother closing.

Q. With regard to price, what would you recommend to best ensure that the bank accepts my

offer, and at the lowest possible price? A. By the time you come to realize that a given offer on a given property makes sense for you, eitheras a personal or as a business investment, you should have completed a significant amount of research. Your research, or the research of your highly skilled and specialized real estate agent, should

be able to help you arrive at a point where you have a rationally supportable negotiating range inmind, based upon market conditions, market prices, the investment you'll be making and the returnyou are anticipating. We recommend that you consult with your real estate agent on how to bestpresent your pricing rationale within the lender's context. If you are going to make an offer because itis a good investment in today's market and your offer is too low, the lender will likely reject the offerso they can gauge your perspective as a prospect.

Share your reasoning with the lender so they can see your perspective as a buyer or as an investor.Creditworthiness notwithstanding, when the lender/seller understands your rationale they will alsounderstand why they should not likely be able to anticipate a better competitive offer. When theirother, more ambiguous options are not financially viable (e.g., foreclosure, bankruptcy, deed-in-lieu),

and when your offer makes sense, you will have the best opportunity to have your offer accepted atthe lowest possible price.

Q. What is the bank's decision-making process in the consideration of my offer to purchase, and

how long should I expect this to take?

A. The decision-making process varies, based on the institution. Here again, a highly skilled realestate agent experienced in this area can offer specific details regarding the details of the process inyour situation.



The lender/bank needs a rationale to justify any write-downs/write-offs. This can often be subject tointernal lender protocols, and this can add time to the approval process. The lender will need to relyupon appraisals and broker price opinions that they will most likely order themselves. Both can bedeveloped quickly. Some lenders will have a monthly meeting in which they review proposals. If ashort sale package/kit is incomplete, expect it to be rejected or returned to you for clarification orreview. This can delay your process up to one month or more.

Lenders will generally need to negotiate to obtain releases from secondary lien holders. Anticipatethat the time required for this process and subsequent negotiations have the potential to becomeprotracted.

Anticipate that a "simple" title search should be expected to take approximately three to five days.Remember, each lender has established their own rules for their short sale process, including whatpercentage of a debt-to-balance (ratio) payoff they will accept. The lender should also be expected tohave internal guidelines for how much commission they will pay for real estate brokerage servicesand for attorney fees.

Q. What is an REO property? A. The letters "REO," stand for real estate owned. These are properties owned by a lender, in most

cases a bank, and become classified as REO typically after an unsuccessful foreclosure auction whenthe title to the property reverts back to the lender. Some banks, given the number of properties theynow own, have established their own REO departments. In many cases, leading real estate agentshave developed relationships to create opportunities for buyers and investors. Buyers/investors canalso contact the REO departments of lending institutions to learn about available properties or visitvarious bank-created websites, which list their bank-owned or REO properties for sale.

Q. In general, would a buyer benefit more from buying a bank-owned (or REO property) or a

short sale property? A. There is no general rule that can, with any degree of certainty, state which category of real estatebuying results in a more favorable outcome for a buyer. It is important, however, that buyers

understand that lenders are extremely motivated to sell when they own the property (REO). As abuyer, it is also easier to identify the true condition of an REO as the property should be vacant.

Banks do not want to own properties and have a great incentive to not only sell their properties, butwill actually offer credits to buyers, in some cases, if the buyer agrees to fix defects or performrenovations on the property.

Short sales offer many advantages as well as evidenced throughout this information; but again, it isvery difficult for anyone to categorically assert that either foreclosures or short sales represent the bestopportunity for a buyer.

Q. What is the estimated time between the acceptance of my offer and the closing?A. There are no norms with which we can guide you. Each jurisdiction has required time frames fornotification of the intent to foreclose and for the various steps in the process. Once again, werecommend that you work with qualified, licensed professionals, including attorneys with localexperience in your market, for specific guidance in this are. As a generality, however, it is notuncommon for a lender to consider a proposal for approximately 60 to 120 days and anticipate closing30 days after they accept your offer.

Q. Is it worth the wait? A. In many cases, yes, it is worth the wait, but this depends upon each person(s) circumstances.



Q. What is the benefit of buying a short sale property as opposed to buying a conventional

property? A. For the buyer, it is a better or lower price, resulting from a stronger negotiating position; for theseller/lender, it is the opposite.

Q. How do I learn about the relevant local real estate market during the last year or so, and

how can I get predictive data regarding estimates of future prices? A. Contact a real estate agent and ask them to provide all past and present pricing data, absorption ratedata (where available) and all other contextually relevant information they can make available to you.

Q. Can I benefit from buying a property that was marketed as a distressed or short sale

property, and then turn right around and sell (flip) it for more by removing this stigmatized

label? A. When real estate prices were escalating rapidly, properties were being purchased and refinanced asthe market continued to rise. This practice created equity leveraged by credit debt. Fearing a reversalof this trend and the resulting under-collateralized loans that would inevitably follow, the FederalHousing Administration (FHA) implemented "anti-flipping" regulations as a condition of the loan,which, under specific circumstances, require the owner to hold the property for a fixed amount of time

prior to selling it once again. As of right now, these regulations have been temporarily waived. Check with qualified counsel for details on how this may or may not affect your investment decisions.

Benefiting from the purchase and subsequent sale of a distressed or short sale property would dependmore upon what your purchase price was than on how the property was labeled. However, because theproperty was "labeled" and viewed by the marketplace as being a "distressed" property, it may havevery well led to a much lower price when you bought it. Fully consider the tax implications as well.

Ask your CPA about the $250,000 home sale exclusion. In the case of an owner-occupied residence,under the current IRS regulations, you would have to live in the property for two out of the first fiveyears of ownership to qualify for the $250,000 home sale exclusion. We highly recommend that you

consult with qualified licensed professionals prior to making such purchasing or investment decisions.

Limit of Liability/Disclaimer of Warranty: The information and opinions expressed herein are presented with

the understanding that they do not represent any or all of the opinions of the Top 5 in Real Estate member

making this publication available to you. The information contained herein is not intended to be a

comprehensive discussion of the strategies or concepts mentioned. Nor is any information or data discussed

intended as tax, investment or legal advice. In pursuing any concept or idea presented, you should rely on your

own due diligence and on your own attorneys, accountants and other professionals to determine if such ideas

or concepts are appropriate for you. Although information herein has been obtained from sources believed to

be reliable, RISMedia, Inc., the Top 5 in Real Estate Network® and its local member do not guarantee its

accuracy or completeness and accept no liability for any direct or consequential losses arising from its use.

RISMedia, Inc., the Top 5 in Real Estate Network® and its local member assumes no responsibility for any

errors, omission or damages arising from use of information contained herein.

The Four Rs of Short Sales

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