Mention the phrase "short sale", and most people will tell you it’s a solution for a homeowner who needs to sell, but owes more on their home than they could sell it for. As someone who successfully completed a great number of short sale transactions in 2009, I can tell you this definition would only apply to about 30% of the cases I have completed.  

 

How would I describe a short sale?  Very simply, it’s an "Exit Strategy" for a property owner who wants or needs to sell.  I'm not talking about an investor who has the ability to pay and is merely looking for a loophole, allowing them to walk away from their obligation.  I'm talking about the proud, our nations savers, the retirees.

 

Unfortunately, most in the general public believe short sales are akin to a foreclosure, meant for the person who has lost their job, is going through a divorce or has closed a business.  I am on a crusade to tell everyone who will listen, these folks represent the minority of the people I work with.

 

The majority of the people I help are the 50, 60 and 70 something's who are systematically "liquidating their retirement" solely for the purpose of staying current on a mortgage, property taxes, insurance and other ownership costs on a property they no longer want or need.  These people have the ability to pay, but at what cost?  They have worked and saved their entire lives, put their children through college and positioned themselves to enjoy a wonderful retirement.  Most have second homes, active travel schedules and grandchildren scattered throughout the country.  Now these poor folks have seen their retirement accounts slashed by the great recession.  This recession has caused retirees to live off a significantly reduced income,  paid from their investments.  For these people, increasing their income through employment is not a viable solution; therefore their only option is to reduce expenses. 

 

For a great number of retirees and those approaching retirement, cutting loose of the second home (they planned to “pay off” when they made it their retirement home and sold their primary residence) becomes their best option for securing their retirement.  But for many, the debt load on these properties makes this strategy not palatable since it would require paying off the difference between the sale price and the mortgage balance from their decimated retirement account (which also triggers a big tax penalty).  There are many stories I've heard from these folks as to why they have gotten "stuck" in this position. Some stories I hear over and over are: Loss of a spouse, want to move closer to the kids, 2. Adult kids lost jobs during recession, tapped houses equity to help support them, 3.  Illness, fall, etc. and 4. Grandchildren in other states.  Each case is different, but all affect me emotionally. In my opinion and experience, this group is in a position to (and should) take advantage of a short sale.

  

The sad part is, when these folks finally reach out for help (at least in my market), in many cases the agents they are dealing with, have no or very limited experience with short sales.  Listing a "short sale" is quite different than listing a property that has equity.  Most "Sellers" go back to the person they purchased their home from, rather than seeking out counsel from an agent who specializes in "exit strategies".  Who can blame the agent that takes the listing without a plan or short sale experience?  Are they not struggling too?   The answer must be education both for homeowners and Realtors.

 

For my short sale clients, before we look at listing paperwork, discuss listing price or marketing strategy, we sit at their kitchen table, roll up our sleeves with a calculator and just talk.  We go over assets (more specifically losses in their assets), income, expenses, plans and objectives.  For many clients this is a tearful conversation and I empathize with them. .  At this point in the conversation, a Realtor must, check their ego at the door.  Once we have all our cards on the table we collectively determine, based on their financial picture, whether or not I can handle the negotiations.  If we decide I cannot, we then discuss the need to bring in a loss mitigation attorney to protect a client’s exposed assets.  If the financial picture is not complex, then I'll agree to take on the short sale with the understanding that if negotiations are not going well, or if I feel I'm in over my head, we reach out to the loss mitigation attorney.  The loss mitigation attorney I rely on usually charges $2,500 to $3,500 to work a short sale with me.  Well worth it, considering a client’s exposure to a deficiency judgment resulting from a poorly achieved short sale.  That's right, just because you’ve achieved a short sale approval, doesn't mean you've done your seller client a favor.  In my opinion, a short sale without a waiver of deficiency is a failure.

 

I have two objectives in a short sale.  I fully explain both during my first meeting with a potential short sale client:

 

•1.      The #1 objective is to sell the property with the lien holder waiving their right to a deficiency judgment.  In most cases, this requires a seller contribution at closing, which is typically accomplished via an unsecured note at a very favorable interest rate for a percentage of the shortfall.  Typically this percentage is 20-40%.  Some banks require 100%, but the cost of interest paid on the shortfall is much less than the cost of carrying the entire note, property, taxes, insurance, etc.  I have been 100% successful in negotiating this waiver.  In my opinion, if I can't achieve this waiver, I have failed.

•2.      The #2 objective is to sell the property with as little impact to the clients credit report as possible.  In many instances, this coincides with the negotiation of the seller's contribution at closing.  Let's face it; trashing someone’s credit has no effect on a bank’s share price, getting an extra 5 or 10K in seller contribution at closing does.  In many cases a listing Realtor or loss mitigation attorney with broad short sale experience can accomplish this objective.  A vast majority of my clients have decided even though they can achieve clean credit through a larger closing contribution, they just don't care about credit at this point in their life.

  

For those Realtors who are taking short sale listings and have no experience,  please, either get educated, get a good loss mitigation attorney involved, or step aside.  We have a responsibility to protect the public - and for these retirees, your success in achieving a short sale with a waiver of deficiency judgment could very well determine how they live out their retirement.  This is someone's life we're dealing with!

 

Let's face it; getting an offer on a "Short Sale Listing" is relatively easy.  In most cases the property is the most competitively priced listing in the neighborhood.  As a listing Realtor, what you need to achieve with an offer once you receive it, is the hard part.  Don't take short sale listings because you think it's an easy sale.  More importantly, don't take the short sale listing then turn it over to a "facilitator" who is taking a percentage of the commission to negotiate with the bank (remember, if they don't have a Real Estate License, they cannot be paid a commission).  Don't turn it over to one of those short sale companies who buy an "option on the property" write a contract with your client to purchase, then push through their short sale contract at 20% below current market value.  Your client will get stuck with the deficiency; the short sale company will sell their "option" to a real buyer for current retail and keep the 20% difference. All the while your seller has a deficiency judgment against them, which the lender sells to a collection agency for 10 cents on the dollar.  Now your client is stuck for the next 10 years being hounded by debt collectors. I'm tired of seeing these vulnerable folks, our Mothers and Fathers hurt by inexperience and greed.

 

Finally folks, this is only the beginning of the pain these retirees are getting ready to experience.   Remember, this whole housing crisis started with the collapse of sub-prime loans (no doc).   Later, the banks went to Alt-A mortgages which are likely to result in a significant number of defaults. Stay tuned for the "reverse mortgage" wave specifically targeted to senior citizens and retirees.  It’s our objective to help retirees preserve their assets, so they can enjoy their retirement with the dignity they so deserve. 

 

For more information contact me at (843) 837-2600 or by email at This e-mail address is being protected from spambots. You need JavaScript enabled to view it . Thank you.