Thursday, April 30, 2015
Short Sale Reality
In my practice of working with Sellers and their Brokers on short sale matters, some transactions are pretty straight forward while others can be more complicated. In most cases, I follow-up with a Broker after the consultation, so we are on the same page and have a plan to help and assist a distressed homeowner seller.
Below is an example of a recent e-mail, redacted, so it is only to be used for illustrative purposes. It is an actual consultation. It is an actual seller. It is an actual Broker. [I have published this one before, but i was so similar to another consultation I had yesterday with the Broker joining me that I thought it is worth sharing again. That Broker from yesterday will know who she is as her fact pattern was almost identical to this].
It was so nice to see you again at our office. On a Saturday too! By the way, too few Brokers ever attend these seller consultation meetings, which is why I thought it so great that you took the time out of a Saturday for you to travel all the way to our office to meet with me along with your sellers. They really appreciated you being with them. Attorneys can be scary.
I just finished dictating my consult notes from that seller consultation. It was a slightly different consultation, I suspect, from what you may have expected or experienced in the past, as these sellers have special needs. In many cases (if not most cases) in our practice, the seller is immediately ready to get started in the short sale process just as soon as they walk out the door. That is to say that, in most cases, they list with their broker right after the consultation. In this case, we are working in a fashion far different from the norm.
I hope you weren’t offended, as I intentionally spent time with these folks on strategies to help them delay the foreclosure process (and thus the time when they list and sell their property short) for a very specific reason. I think that reason has lots of value for your sellers. They want to do a short sale and they want to hire you, but they don’t want to do that short sale right this minute. The reason is that these sellers NEED TIME!
You see your sellers DO QUALIFY to do a short sale. They have lots of hardship and their income is such that we can certainly make a good case for them to be approved for a short sale and have almost $100K eliminated as a personal debt. That is great news!
So why did I suggest you holding off listing?
Your sellers no longer have much income flowing in as a result of their severe hardship. It won’t get any better in the future. The folks will have to pay rent somewhere after they move out. We estimated that at $1500.00 per month. That means that they have to pay real money to a landlord OR every month that they stay in the short sale property, they save $1500. They need that precious money saved so that they can take steps to move and if we sell too quickly, they will be left with little money or funds to use to make that ultimate move.
There’s still another reason why I need to have your sellers save money: They will have some forgiveness of debt tax to pay. Hard to believe that even though they have hardship, they will still have to pay tax on the short sale. We went over this in depth at our meeting. We always include an in-depth tax consultation with each and every consultation.
So why again did I suggest that they delay the short sale?
You see there is a tax on debt forgiveness and it is a pretty hefty tax at the federal level. As you know debt forgiven is taxable income and, in most cases, sellers meet an exception. In this case, THEY DON’T MEET THAT EXCEPTION and will have to plan on some taxes to pay after the short sale. It’s still a great deal for them, but if they can save $1500 a month we can get enough together to pay the tax after the short sale gets approved and closed. That tax is going to be pretty substantial and we went over those matters clearly with your sellers.
So you are going to get over to the property and do a thorough inspection here pretty soon. The sellers were surprised (and elated) that they did not have to make any repairs and that their property would be sold “As-is; Where-is” at the time of closing. I saw a sigh of relief from your sellers during that part of our consultation. I am sure you saw it too!
You can list the property for sale at a 6% commission and feel comfortable. The owner of this loan (aka investor) pays a 6% commission and we have that on good authority. That makes matters a bit more comfortable for you.
You can also list (when the time comes) with a note in the “Agent Remarks” in your listing that the buyer or buyer’s broker need NOT be concerned about paying any negotiations fee as your seller already agreed to pay our small negotiation fee and, in fact, signed a written contract with us (what we call a “GAP AGREEMENT”). It means that we get started right now and you and they can call anytime and there is no charge as it is all included in the overall fixed-fee short sale negotiation fee. We have a great track record with this lender and expect a 71% chance that the lender will actually pay our fee.
So where do we go from here? Your sellers will be calling our office as soon as they receive an appropriate Notice of Default and that will spur us to get them enrolled in the Foreclosure Fairness Act so that you are afforded plenty of time to market and get a qualified and respectful offer on your seller’s short sale property. That will also get us time to get your offer properly negotiated.
This Foreclosure Fairness Act has really proven to be a secret weapon for us. We stop foreclosures and can typically extend out the process as many as 6-8 months. Our attorneys really do a great job with this statute. This law allows the sellers more time so that they can get their financial house in order and then we will go into full swing short sale mode.
So I hope you understand that the process may take quite some time. I suspect that, given this fact pattern and these sellers, it most likely will take about almost a year before we are all done and they have moved out. This is driven by the fact that they wish to stay in their home as long as possible. I am sorry that we can’t list right now, but we both know that we are both looking out for the best interests of our clients.
At the time of ultimate sale, we will also apply for HAFA for your seller as we can pick up an extra $10,000 in relocation assistance for your seller’s at the time of closing. We have really been successful in getting that paid in short sales.
We are available to you and your seller to consult at any time no charge as you know as your seller’s hired us at the time of our meeting by signing that GAP AGREEMENT CONTRACT. I gave you and your seller my assistant’s card so that you or your seller can call at any time. We want the best for your seller and we look forward to being able to work with you as a Real Estate Professional to be able to together meet their short sale needs. They are a client for all purposes now and we look forward to working with both them and you.
I think we have a great plan and I think you are the best person for the job. You have the knowledge, experience, dedication and attention to detail that will allow these folks to achieve a graceful exit from their problem property.
These short sales contain a lot of traps for the unwary. I always tell sellers that we never take a short sale deal without a Real Estate Licensee involved. We need your expertise. Heck, we attorneys couldn’t sell ourselves out of a paper bag. We need you!
Thank you again for being a part of our client’s transaction.