The economic world is in turmoil. A policy paper released by the Mortgage Bankers Association on May 28, 2008 stated that an industry average for taking a home into REO would be about $50,000; or as much as 30% to 60% of the outstanding loan balance. The name of the report is “A Report on Lenders’ Cost of Foreclosure from the Mortgage Bankers Association” and can be found at www.NGA.org.

The Agent needs to understand why a Lender generates such cost and how a Short Sale may be in the Lender’s interest.

A summary of some of the categories of Lender loss in a foreclosure is as follows:

  • Lost principal and interest payments
  • Tax and insurance payments
  • Maintaining the property
  • Lost servicing fee income
  • Costs of collection efforts / servicing
  • Legal costs for handling the foreclosure
  • Administrative fees
  • Costs of restoring the property to saleable condition
  • Real estate commission for REO agents

This issue is compounded by the knowledge that the market isn’t going to turn around suddenly and practitioner, home owners and Lenders will need to weather the problems associated with Short Sales for years to come.

The Short Sale transaction is wrought with issues and potential liabilities, but so is the practice of real estate in general. Now is the time for Practitioners to step up to serve clients in their true time of need. Experience and education is a powerful combination in the quest to provide exceptional service and reduce litigation exposure in today’s marketplace.

Chapter IX, Listing and Selling the Short Sale, addresses the application of confidentiality principles to a Short Sale transaction. Both Virginia law and the Code of Ethics address this issue. All financial information is confidential and thus can only be disclosed upon approval by the client. In a Short Sale situation, the disclosure that it is a Short Sale is the disclosure of confidential information and thus can only be done with the approval of the Seller.

This leads to the second type of Short Sale. The second type of Short Sale is where the Borrower, in an attempt to sell their home, asks the Lender to forgive their deficiency in funds and release the deed. This becomes a significant issue for Sellers, Buyers and their REALTORS®. This type of Short Sale is a long process for many and represents over 50% of all transactions for many markets across Virginia.

There are several types of certifications and designation programs to prepare the REALTOR® for who wishes to represent Short Sale Clients. Here is a brief summary:

Acronym Program Sponsor Web site
SFR Short Sale Foreclosure Rep NAR REBAC www.rebac.net
CDPE Certified Distressed Property Expert CDPE www.cdpe.com
CSP Certified Short Sale Professional RealtyU www.realtyuonline.com
LMC Loss Mitigation Consultant Massachusetts Association of Realtors® www.marealtor.com

There are a number of individuals and entities involved in the approval of a Short Sale and the Practitioner must coordinate them all. This is a long term transaction that could take between 30 and 100 days longer than a normal transaction. Clients should be properly prepared for these delays. This may be a huge deterrent to many Buyers.

There are a number of disclosures and special documents that have been created for the REALTOR® to use. The forms are available in Chapter XII and include disclosures to potential Short Sale Buyers and Sellers, and specific addendums for Offers to Purchase and Listing Agreements.

Lastly, Brokers are encouraged to have specific company policies to guide Agents and ensure that proper care is given, this is covered in Chapter XI.