The business of foreclosure short sales, sometimes referred to as ‘pre-foreclosure’ sales is a complicated one to say the least. The processes involved are complex and time consuming, requiring those charged with initiating and assisting said procedures to hold vast knowledge and expertise regarding the subject. However, banks are increasingly putting realtors into a difficult situation where they must make a tough choice, which is to either cut their commission costs or be forced to walk away from the deal.

In the world of real estate, a short sale is a transaction in which a lender is compensated for a property which is nearing foreclosure with an amount less than is in fact owed. The bank agrees to a figure which falls short of the full amount, hence the term ‘short’ sale. Such sales are much more complicated and take a great deal more time than regular sales, meaning realtors often decide case by case whether or not to work with them. An increasing number of homeowners encountering difficulties due to health, employment or other factors are being forced to consider short sales as an alternative to foreclosure, therefore requiring experts to guide them through the process, including a trained realtor.

For the realtor, they accept the listing of a short sale property with the sole objective of helping the seller through the subsequent process to get their property sold. The realtor then has a great deal of responsibility to their client as the listing agreement is made entirely between these two parties. However, when a bank or other lender decides to inform a realtor that they will only consider paying them as little as 5% of the offer being presented to them, the realtor is forced into a difficult situation. He/she can basically stick it out and attempt to force higher commissions which would risk rejection of the offer by the bank. Or they can simply walk away from their initial intentions and agree to take the lower commission for the sake of helping out the client and ensuring the property sells.

Over recent years, the vast majority of short sales have allocated the buyer’s agent a commission rate of less than 3%. Homes that are approaching foreclosure and go for short sales instead do not get shown particularly often.

However, there are calls for legislation and subsequent changes of practice which will help create a level playing field for both parties and prevent this black and white ‘our way or no way’ attitude frequently adopted by the banks. Quite simply, under the rules, if a bank wasn’t happy with the numbers, they would be required to return to the buyer and ask for a higher fee for the home. The realtor therefore would not have to make the unpleasant decision as to whether they should walk away from the deal or accept a few that are way below their general worth.

Such would be of great benefit to agents across the business, though whether it is actually introduced and subsequently takes hold is another question altogether.

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Qualification for a foreclosure short sales is, of course, the first consideration any homeowner should make before attempting to commence proceedings. The requirements are certainly not as simple as some may think, though can be broken down into a few fundamentals for easier understanding.

The Market Value on the Property Must Have Dropped

It is essential that the home or property in question has less value than the balance which remains owed to the lender. Pre-payment penalties may be included in this balance. The figure must be well substantiated.

The Property’s Mortgage should be of Default Status or Close to Approaching it

In the past, it was rare or almost impossible to find a lender which would consider the short sale process if payments were still current. This however has changed as more and more lenders have come to the decision that there are a myriad of other factors which can lead to a default, therefore they are much keener to nip potential future problems in the bud, so to speak.

The Property’s Seller Has Found Him/Herself in a Difficult Situation

In this circumstance the seller is required, upon sale, to provide an official document in the form of a letter detailing their particular situation, also indicating why they will or already have stopped meeting their current repayment needs. There are a number of common claims which though genuine do not substantiate this claim:

• Problems with neighbors: Regardless of the circumstances, quarrels or discontent with neighbors is never an acceptable justification.
• Pregnancy: Whether it has been a deliberate decision to increase the size of a family or an unexpected occurrence, this will not help
• Purchase Decisions: Spending money earned on unnecessary items resulting in the inability to meet repayment will never hold water here.
• Moving Home: Lenders will not be interested if you have purchased another property regardless of the reason for this

General examples which will help toward short sale qualification include:

• Unemployment
• Medical Problems
• Bankruptcy
• Divorce
• Death

Of course, neither list is exhaustive but serves as a good indication as to what exactly constitutes an unfavorable circumstance, at least in the eyes of a lender.

The Person Selling the Property Has No Assets

When a lender is approached, they will most likely ask the seller to produce a copy of their financial records, possibly their tax returns for inspection. Should the lender believe that a seller does indeed have some degree of assets, they will probably refuse the short term application on the grounds that the seller does indeed have the means by which to pay the amount owed. Those with assets are often accepted, though can incur considerable extra charges making the process potentially unprofitable.

If a seller meets these requirements, along with countless other provisos, some of which are written and some simply common sense, they may indeed apply for a short sale as an alternative to foreclosure. All institutions have their own specific rules, guidelines and regulations therefore a little ‘shopping around’ is always wise.

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With banks not cooperating in foreclosure short sales it is difficult for the foreclosure rage to be tamed. If the banks lose 19% by opting for short sales and 40% by following foreclosure why are the banks not being prudent and remaining stubborn? There are so many numbers involved that it would have led to the collapse of the financial system of the country. Although the fates of banking and finance are interlocked their activities are opposing.

A research undertaken by Campbell Communications note that only 23% sale transactions are completed. Tom Popik of the survey group said, “Three out of four potential short sale transactions fail, principally because the mortgage servicer takes too long to respond to the offer. When these same properties are later sold it further depresses real estate prices.”

Congress too has failed when up against securitized mortgages. No medicine seems to work. Re. Brad Miller (Democrat) said, “We’ve been trying to figure out probably for close to two years now why so few mortgages are being modified when it seems to make absolute business sense for the person holding the mortgage to modify rather than foreclose or to take a smaller loss selling it rather than a bigger loss foreclosing on it.” Miller’s accusing finger points at securitization.

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ForeclosureListings.com has a comprehensive, searchable database of foreclosures in areas like Columbus, Bronx, Derry, Missoula and in the whole country. Try to search foreclosures by state today! Banks Are Not Cooperating in Foreclosure Short Sales