Changes in Short Sales – Are You Keeping Up?

Every day the Banks are making minor and/or major changes on how they do short sales. What was once an easy short sale system, now varies depending upon each lender. Many lenders will want the Sellers to use their own in-house short sale package, even though my detailed generic package pushes the deals forward. Sellers really don’t have a true concept of how much debt they have when it comes to paying all of their debts. Many of them will not even include a debt on their financial statement to the lender, just because they are choosing not to pay it. In my short sale system, I have created a detailed short sale package with forms that are used to help my Sellers make sure that everything is included and maximize their chances in the consideration of the short sale.

In January of 2014, Florida allowed a law to be passed that the Short Sale Lender may receive a Deficiency Judgment at the time of the Foreclosure while still having the asset (property) in their portfolio and not even selling it yet. Before this law was passed, the Short Sale Lenders could foreclose on the property and then they have a choice whether or not to either forgive the debt or pursue the Sellers. If they forgive the debt, they still issue a 1099 (Forgiveness of Debt Form) which means the Sellers would have to pay taxes on the amount that the bank has forgiven. Or the Lender could go after the Sellers again by filing a new lawsuit for a Deficiency Judgment on the balance that is owed AFTER the Lender sells the property and releases it from their portfolio.. Many Short Sale Lenders are amending their complaints to request this immediate deficiency judgment. Sellers are blind to the new changes and they are burying their heads in the sand, thinking they are living in the house for free and then letting the property go to foreclosure with no repercussions.  

As Investors and Realtors, we need to inform the Sellers of all of these changes. I can’t even believe that Florida would allow such a law to pass, as the Short Sale Lenders have no idea how much they have as a deficiency because they have to hold the property which costs them interest, maintenance, taxes, insurance, management, and realtor fees. This amount could even be more if the Short Sale Lenders decide that they want to fix up the property and then sell it. So … what amount have they added to the deficiency judgment amount against our Sellers for all of these fees???? I am assuming they are using the SWAG theory….a Scientific Wild A** Guess!!! This is an amount “guess-timated” by the Lenders, with no educated Sellers arguing that amount. Therefore, the Short Sale Lenders are getting paid more and more money. This amount, even with a deficiency judgment issued, can be written off by the Lender at any time by passing the buck to the Sellers with the 1099 Forgiveness of Debt.

For the short sale deals that I am working, I am finding that the Short Sale Lenders with Fannie Mae as their investor underneath are inflating the value of the home by an additional 20% of what it is actually worth. What does this mean for the negotiator? It means you have to make changes on how you are arguing over value. I have gone at this in two different ways, buying notes and also providing appraisals. I am getting deals approved and closed that nobody else is able to do.

If you are dealing with Nationstar, you will be working with Homesearch.com which is their new auction site. This is a pain in the butt!!! No matter what the offer, Nationstar is never, and I mean never, happy with the offer; it is never high enough for them. Therefore, this means that on these deals you need to be ready to fight. Nationstar makes promises to Listing Agents that if the buyer doesn’t have a Realtor then the Realtor can double dip and get the commission on both sides. I have written lots of articles about Nationstar who is just a server for other lenders. I have also called and complained to the National Association of Realtors about all of the false advertising where Nationstar is stating “Short Sale Approved,” on their auctions. Well, if it was approved, then what about giving me the approval letter for the existing buyer that I presently have on the property?

I love short sales and to fight, as I do it, on behalf of my Sellers. There is no voice for the Sellers; however, when they do a short sale with me, they get control of the outcome instead of the Short Sale Lender.

Stay tuned for new tips on how to work around Short Sales by purchasing Notes and providing Appraisals for values. I will keep you all informed monthly. However, if you are working on a short sale NOW, you need to be able to maneuver through all of these changes so you can close your deals.

Happy Negotiating!

Kimberlee Frank