Why Go Short Sale If the Seller Makes* Zero Money?

Okay, if a seller doesn’t make money but 13 other people do* (see note at bottom) on a short sale, where’s the benefit to the seller?

Short sales happen when a lender agrees to accept less than the amount owed against the home because there is not enough equity to sell and pay all costs of sale.

Not all lenders will negotiate a short sale, and that is why a real estate agent or a lawyer can be a tremendous help by contacting the lender’s loss mitigation department to find out.

A seller can’t just wake up one morning and decide they’re going to sell their home at a loss by asking for a short sale. Typically, lenders won’t even consider a short sale if payments are current. Lenders will be more agreeable to negotiation if your payments are in arrears. Plus, if the seller has cash assets, the lender might try to tap those accounts. Doing a short sale is not for the faint of heart.

The only reason to do a short sale is if the seller’s credit is at risk.

How is the seller’s credit affected?

According to David Steep, division manager at Vitek Mortgage, sellers will take a bigger hit on their credit report by going through foreclosure or giving the lender a deed-in-lieu of foreclosure.

The affect of a short sale on a seller’s credit report is much less damaging. The ding on credit will show up as a pre-foreclosure in redemption status, Steep says.

Also, a seller who wants to buy another home after foreclosure will end up waiting about 36 months before a lender will offer any kind of interest rate that makes sense.

The good news for short sale sellers is the wait is much shorter before buying another home: about 18 months at a good interest rate.

If you’re going after seller’s trying to decide whether to let a home go through foreclosure versus attempting a short sale, salvaging their credit is the main advantage to doing a short sale.

*Note: In a recent post Ruby Zuniga commented: “I believe that this [preforeclosures aren’t selling] is going on everywhere. I’m in the Los Angeles, San Bernardino and Riverside County Area. I have a listing in the S.B County and a listing in the L.A county. The Homes pre-foreclosures are not moving? Why? Agents don’t want to waste their time. They will rather take buyers to a Normal Home where their commission is guaranteed.”

Is this the case? I mean, if an agent helps his client buy a preforeclosure home, won’t he get a commission? Why isn’t it guaranteed? Granted, the agents may take a hit on the commission because the lender will insist on a fee reduction, but the bottom line is the agents and their brokers get paid for selling the property. I’m very curious.

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Ruby Zuniga- Century 21 Citrus

Hello its me again. The agents do get paid and sometimes at a fee reduction that is ok. I know there is a benefit to the seller, their Credt will be in much better condition and they the sellers will be able to buy after 18 months or so like you stated. At this point in my business I’ve made up my mind to become a Short Sale Pro. I have several listing and 2 are short sales. My stress is when the bank Tells me that they are not able to do anything after the Third month in arrears, and then the bank start the negotiating process, Then the bank gives you 90 days to sell it, if it doesn’t Sell during that time then they record a Sell Date, and I feel that all of our Hard Work to get it Sold goes down the drain . Like I said, I do not know the system yet, but I will have it packed down and become the “Short Sale” queen.

Gary Elwood

Good for you, Ruby. I’m sure I’ll continue to post further on the topic of short sale, so feel free to offer comments at anytime. We love hearing from you. And definitely feel free to update us on your progress and results at anytime. It’s great to hear news from the front lines.

Beryl Gosney

The common frustration of agents is holding the interest of a buyer who has made an offer, while the lender dilly dallies around to get an appraisal on the property. They generally order an appraisal ONLY AFTER an estimated HUD-1 has been prepared by someone in your area…If you don’t take the initiative to get the HUD-1 done to send with the offer, then they will sit their waiting until you get one to them…

Then and only then will they seriously look at the offer and don’t forget to send them copies of your listing agreement and a copy of the MLS listing so they can see the commissions been advertised, etc….

Once all that is accomplished, they will order an appraisal ….. usually takes another 5-7 days —- (I know what you’re thinking — more delay and how long will the buyer be willing to wait???)

Once the appraisal comes back to them and they can crunch some numbers, they then will approve or disapprove the offer.

If you offer is back by a VA Loan …. here is where I can really help you…or at least my contacts certainly can….because the VA Guarantee Loan Program can put alot of pressure on the lender to push the process along…But only if you have done the paperwork drill up front —- that’s the key.
Get it together the moment you list the home…dont wait until an offer comes in….

Get the estimated HUD done based on a well analyzed CMA you do yourself and provide that to a cooperating title & escrow company you are loyal to…

I’ll be watch8ing this post to see how it all turns out for you….Short Sales are here to stay for a couple 2-3 years —- there were alot of people who got put under creative financing where it stretched the dewb beyond peoples ability to repay if even the slightest hickup in their life comes along….

ISREP – the International Society of
Real Estate Professionals

Gary Elwood

Beryl, I really do appreciate the time you put into your comment and the help that it lends to Ruby…as well as any other real estate agent who wants to go short sales. It sounds like you know your stuff…and the part about the VA backed loan…is priceless information. Thank you very much Beryl for taking the time. Gary

Ruby Zuniga

Hello Everyone. YES!! I did it. I have an approval on a short Sale, I was told that It was going to be very difficul! Not difficult at all. I would say “Very Time Consuming”. YES I’ll Open Escrow It is an 80/20 with different Banks. I have also decided to Put an “AD” in the newspaper to help people caught in Possible Foreclosures. I’ll have a seminar to help the homeowners maybe “Keep Their Home” and if not possible, then I want to list their homes as “Short Sales”.

Gary Elwood

That’s awesome Ruby! Glad you didn’t listen to the naysayers and took it on. When you say time consuming, how long? Keep up the good work and please follow up with updates! Gary

Ruby Zuniga

The property was listed in May. I finally received offers on it in the month of August. It’s time consuming because the banks are swamped with short sales and foreclosures and sad to say, Sometimes they misplace the documents and they have to be resent time and time again. I always keep copies of my confirmation email so I was able to prove to the banks that the slow down was not because of me. I network with other Realtors and I have a referal for another “short sale”.


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