Florida Virtual Houses

Short Sale Expert Weighs In

June 12th, 2008

It's not every day that we get a CEO answering questions from readers, so when one does I like to give it a little extra attention. That said, here's a comment that was submitted by Alexander Paykin, CEO of Option Next. He wrote in awhile ago commenting on The New Exit Strategy: A short sale but his contribution got lost in our voluminous inbox. Obviously Mr. Paykin expects to drum up some business by writing to Hot Property, but we don't mind it when people do that as long as they provide some genuine info along with the implicit sales pitch.

Here's his comment:

All right, I am the President & C.E.O. of Option Next, the leader in short sales mitigations, and it's time to set the record straight. So by popular demand (OK, so maybe just at the request of 'D'), here are some answers then:

Cass: On May 9th, you asked about why the bank might reject your short-sale offer, even at 'full-price'. The answer is that the full asking price that the realtor listed the property at is not the same as everything owed on the property. It is simply the price the realtor listed the property at, figuring he would find someone to put in contract at that price, and then hope that the bank approves it... It reality, that price is probably much lower (as much as 40 or 50 percent) than what's owed on the property, and the bank did not want to take that big a loss. If your offer is anything short of fair market value for the property, the bank may choose to wait and see if it can get more at the auction. You have 2 choices: If you're willing to pay more, make a higher offer, if not, look for a different property. Also, when considering buying a short-sale property, ask the realtor if it's already approved for the short payoff. If it is, you shouldn't have to wait for anything. If it's not, ask the realtor if they plan on mitigating it themselves, or handing it over to a professional loss mitigation company. If the realtor says they will do it themselves, just walk away. Realtors rarely get a good short sale approved when compared to good mitigation companies, and most of them will be a waste of your time...

Dee: Generally, having a PMI will discourage the bank from bothering to negotiate a short sale. After all, if their losses are insured, they can just wait until the thing closes, and have the PMI pay most of the difference. However, some PMI companies are now requiring the banks to take reasonable short sales offers in an effort to mitigate damages. So the answer is, it might go either way. Depends on your bank and PMI company...

RAIMIS: You didn't really have a question, but to comment on what you said, it will stay on your record for 6 years, but a competent loss mitigation company should be able to refer you to a credit repair company which can make it go away much sooner...

Yun Wang: Paying the seller outside of closing is highly illegal! The entire concept of the short sale requires that the bank take all of the proceeds of the sale and the seller walk away with nothing. If you pay the seller separately, not only is the short sale fraudulent, but you are exposing yourself to many additional liabilities (i.e. tax liabilities, as the 75k you give the homeowner will not be reportable as a house purchase). Whatever you do, don't pay the seller separately in a short-sale!

Kristen Canova: The effect on your credit will not be too severe. You can expect a 10 to 50 point drop in your score, which can be wiped away in a credit repair. You should have no trouble renting, as long as you keep your rent amount with your means...

Janine: Homeowners' Association fees are independent of your mortgage and are technically your responsibility. However, if you are completely unable to pay them, the bank may choose to pay them out of the short sale proceeds, simply to make the deal go through. Pay them if you can...

Patti: A short sale negotiation can be instituted at any time, as long as the homeowner is still the owner of record. In other words, a short sale can be approved and completed 5 minutes before the scheduled auction. The more time you have the better, but it's almost never too late to try. Also, a homeowner can begin the short sale process before they are even in default. Banks allow a loss mitigation company to negotiate a short sale if the homeowner will soon be unable to make his mortgage payments. You don't have to wait until you can't afford your bills!

CAROL: If you do a short sale, as long as the property was your primary residence, the bank will not go after you for the difference. In the event of a foreclosure, it depends on the state, many allowing them to go after you personally... Short selling is almost always a better solution than foreclosing, but if you do choose foreclosure, consult a good attorney in your area...

Danny Haws: The advantages to buying a short sale are few. In fact, there is only one. The Price! The disadvantages are that it is a slow process and that after you spend time and possibly money (attorney's fees, inspections, etc.), the bank may reject your short sale offer and you have to start from scratch. Also, beware of the really cheap deals, they usually have a lot of damage and require extensive repair...

Kathy: If you can't afford the promissory note for the difference, Don't Sign It! Tell the bank the situation. By that, I mean, draft a full letter of explanation, explaining your hardship in detail and illustrating why you can't possibly make such a payment. Be as descriptive as possible and appeal to their compassion and humanity. Remember, the bank mitigators are people too, and they want to be able to sleep at night. If they realize how much of a hardship it is for you, they will try to work out some better alternatives, one of which may quite likely be a complete write-off of the difference owed...

Suzanne: The first step is to get a qualified loss mitigation company on your side. This is at no cost to you! The loss mitigation company should then refer you to a realtor who is well qualified in the short sale field. The realtor will list and market your property at the short sale discounted price, and the loss mitigators will negotiate with the bank on your behalf. You don't have to pay a cent for all this work, as it gets paid for by the bank as the real estate commission. That's pretty much it... As for the likeliness of approval, considering you need a drop of about 25-30%, I am reasonably confident that a good loss mitigation company can get it done. As for the effect on your credit: yes it's a black mark, but no, it's not that bad. Considering your current credit score, as long as you make all of your other payments on time, you should have no difficulty with buying another house or getting approved for other credit.

Sam_Seek: It doesn't matter where your cash is. You have to disclose all of your assets to the bank, and if you have too much in liquid assets, they simply won't approve the short sale unless you pay some of the difference. Keep in mind, as long as it's just some modest savings, the banks will not go after it...

Heather: No you can't sue the bank. It's their choice whether to accept an offer for less than you owe. They are never obligated to accept anything other than a full payoff. However, if your realtor did the negotiations for short sale on his own, and did not consult a professional loss mitigation company, you may have a case against the realtor. The realtor owes you a fiduciary duty, and unless the realtor is HIGHLY qualified in loss mitigation, part of their duty is the refer you to someone who CAN help, and not just to try blindly. Whether you can sue your realtor will depend on this: 1. How experienced and educated was your realtor when it comes to short sale loss mitigation? 2. Did the realtor conduct the mitigation properly? If you need some help in figuring out the answers to these questions, don't hesitate to call me, I'll explain it in more detail...

Esmi: Sounds like a short sale is your best bet. Don't worry too much about the credit consequences, they won't be too sever. Considering the other options are to turn in the deed in lieu of foreclosure (a terrible hit on your credit), or to foreclose (even worse). A short sale should not affect your credit too poorly, especially since the property wouldn't be shorted by all that much (10-20%). If you are going to go with a short sale, don't spend your money fixing anything! Banks approve short sales faster when a property is in poor condition, so don't spend the few bucks you have left fixing it up...

Kelly: Well, your question is a bit lopsided. Yes, you put down money, paid every month, etc. However, the bank gave you a loan. They put their money down, with the understanding that you'd give it back with interest. Is it right that you're telling them you won't? Right has little to do with it. The fact is, it is money you owe. You can refuse to sign the promissory note, and they may approve the short sale without it, however, this is at their option, and if you have the money to pay them back, then they'll see no reason why they should just give up on the loan they gave you. Remember, every problem has two sides to it. I'd consult a good loss mitigation company if I were you, since a good one can often get the bank to let go of the promissory note idea...

Well ladies and gentlemen, this is all the time I have for today's answer session. I believe I've covered every question asked between now and April 7th. If you have a question, contact me at apaykin@optionnext.com, call me at 888-311-NEXT(6398) x.801, or just go to www.optionnext.com, and drop us a line. We attempt to answer as many questions as we can, and are in the business of providing short-sale, short-refi, loan modification and other foreclosure alternatives by negotiating a fair and reasonable compromise with your bank...

Alexander Paykin, J.D.
President & C.E.O.
Option Next, Inc.
www.optionnext.com

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