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Traditional short sale methodology:

When a real estate agent meets a seller of a house that is over leveraged and it is determined that the lenders need to take a discount in order for the house to sell the traditional method that is most widely used includes the following steps:

The listing meeting

The real estate agent meets the homeowners and explain to them that there will be a need to get the bank to short sale the house in order to get it sold. The communication between the agent an sellers is crucial as the sellers need to be aware of all of the possible alternatives to a short sale as well as the benefits and possible negative ramifications of the short sale.

Pricing the home

The real estate agent prices the home out and lists the property on the MLS. The pricing of the property is the first hurdle that an agent to overcome. If the property is listed at close to what is owed on it then there is a much higher probability that the banks will take the (smaller) discount however , this tactic reduces showings on the house . Conversely , if the property is listed at a low price the house will generate interest but the lenders may not agree to take the bigger discount.  In the traditional short sale scenario, agents typically list the property at market price and reduce the price on a weekly or bi weekly basis until an offer is received.

Getting offers
In a traditional short sale, once the property has been on the market and an offer is presented to the listing agent this triggers a mad dash to get the paperwork together and submit it to the lender. Typically the agent will call the lender(s) and ask to get their list of paperwork that they will need along with the offer to make a decision as to whether or not they will accept a short sale.

Negotiating with the lender
Once the paperwork is submitted to the lender(s) , the negotiations will start. The timing of the short sale approval process is the following :

Losing buyers
Because of the timeline above, in a typical short sale situation the buyers who have submitted an offer will lose their patience and move on to another house. Most buyers in this market are simply not going to wait 3 – 5 months to get an answer that may not be favorable.

A quick primer on MN foreclosure law:
Minnesota adopts both a judicial foreclosure process and a Non judicial foreclosure process . Under the judicial system (foreclosure by action) the bank sues the sellers and reserves the right to go after them for deficiency judgments.  Foreclosure by action is not a common way for lenders to foreclose because of the associated court costs but is used in cases where the lenders feel they can go after assets.
The more frequent way for lenders to foreclose in Minnesota is through foreclosure by advertisement (non – judicial foreclosure).  Here it the typical timeline for foreclosure by advertisement in MN:



In Minnesota, under foreclosure by advertisement the lien holder who actually took the property through a sheriff sale waives their right to a deficiency judgment (see Minn. Stat 582.30 ) .

Traditionally the first position mortgage is the one that takes the property to sheriff sale and, under foreclosure by advertisement, therefore waive their right to a deficiency judgment and cannot go after the sellers for the difference between what they have accepted as a short sale and what they where originally owed. In the situation that a property has not gone to sale there is a considerable amount of possible future risk for a larger deficiency.

The problem with negotiating with multiple lenders:

In a short sale situation the first position mortgage will dictate how much a Jr. lien holder can get as a payment for a release of lien. This payment is usually a very small amount ranging from $1,000 to $5,000 regardless of the amount due on a second mortgage. The Jr. lien holders will usually accept this amount as a release of lien , this allows their lien to be removed from the property but does not release the sellers from their obligations and terms of their promissory note that they signed when their gave the bank a mortgage. We are seeing more and more lien holders go after the homeowners and proceed to wage garnishments; I believe that this will continue to be a big problem for sellers and will engender some liability for the agents and brokers who have failed to disclose this.
The obvious solution to dealing with this is to negotiate with the second position mortgage and offer more money for a full satisfaction of mortgage and ensure that the lien holder cannot go after the sellers for a deficiency later. The question is where does the money come from? There are 3 different sources that this money can come from in a traditional short sale situation:
The Seller:
The seller could feasibly come up with the money and figure out a way to allocate these funds either on the HUD-1 (and hope the first mortgage will allow this to happen) or outside of closing (not a good way to do business as all monies exchanged in a real estate closing should be accounted for through a HUD1). Either solution is not very likely as the sellers are in financial distress and probably need as much money as possible to move to their new home or apartment.
The Buyer:
The buyer could decide and choose to provide additional funds to the Jr. lien holder. The funds would have to come from the buyers’ side of the HUD-1 and would be over and above what the purchase price of the property is; the major problem with this source of additional funds is that it would be highly unlikely that this additional amount could be financeable.
The Selling Broker:
The brokers could choose to give up most or all of the commission proceeds to the Jr. lien holders. This is obviously not very palatable to agents who are about to get a house sold with all of the additional work that a short sale involves.

The case for non-traditional short sales and the benefits to sellers and agents:
As a short sale negotiating company, we work exclusively with agents that have a high level of integrity and who want to ensure that their sellers have their properties sold with no, or the least amount of negative ramifications. We feel very passionate about getting short sales negotiated in a way that every effort is made to get lenders to approve a settlement in full Vs a release of lien.
In a non- traditional short sale, the source of additional funds needed to ensure a higher likelihood of a satisfaction could come from a buyer that is willing to purchase the property and immediately resell it for a profit. The additional funds needed to satisfy the Jr. lien holder can come from the profit that an investor makes. As a principle of a short sale negotiating company and an investment firm, we have done this numerous times; to the tune of over $350,000 so far early this year. These funds have helped dozens of sellers get satisfactions of mortgages and pay a whole host of other expenses such as : back taxes, HOA fees, rental escrows, water bills and any other unforeseen expense that can pop up at the last minute. In a non-traditional short sale these last minute expenses would most likely come from the brokers commissions.
Our company provides a solution to real estate agents to outsource their short sale negotiating and provide an immediate offer to the bank. This is a real offer backed by real money. Because the investor offer is low the bank rarely approves it but it has initiated the process that needs to get done with the lenders for them to consider future offers. Once a future offer comes in we will be in a situation with the lender that we will be able to get a much faster turn around time to then get the deal approved.
To some, this process may seem controversial. I assure you that all that we do is 100% above board and everyone is completely disclosed to. We are proud of what we do and how we conduct our business. We have never had any complaints against us and always do what is best for our sellers. The fact that we have allocated so much money to satisfy mortgages is a testament to our intent. We are not aware of anyone else in the US who are doing short sales in this matter.
There is no cost to the agents who work for us and our team of negotiators fight tooth and nail to make sure that agents get their full commissions.
If you would like to get some more information about how to work with us as a short sale agent please contact Vicki Schwartz with Ascendant Realty at (612) 801 2355 we work with all brokerages and have successfully CLOSED over 300 shortsales .  Sellers please visit us at www.wecallyourbank.com

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