Why would people facing foreclosure say No to a short sale

Question

I am just starting to pursue helping people facing foreclosure (in California) get out from under that "weight". Assuming they are unable to get a modification and unable to make up the missed payments and fines/fees they will benefit by:

1 Not being embarrassed by a foreclosure
2 Getting out from the debt of a property that has grossly
   devalued (upside down)
3 Will have less impact (on their credit) than from a foreclosure
4 Won't need to worry about a deficency judgment
5 No out of pocket fees for selling the house.

What is the possible "upside" to not taking short sale?

Doug

Justin S. · Answer

Your state laws should have statutes that describe what is covered.  In AZ, there are:

http://www.azleg.state.az.us/FormatDocument.asp?inDoc=/ars/33/00729.htm&Title=33&DocType=ARS

http://www.azleg.state.az.us/FormatDocument.asp?inDoc=/ars/33/00814.htm&Title=33&DocType=ARS

If you know the statutes, you can simply send them to the bank and tell them to waive any deficiencies since if the buyer chooses foreclosure, they are protected.  Banks would rather sell now versus later and incur additional expenses.  But its up to you to make sure you get it in writing.

James Ward · Answer

As for why some property owners will not do a Short Sale.  They either do not understand:

1) The Short Sale itself.
2) What will happen after the Short Sale.

Or, and this is the big one, THEY DO NOT CARE.

If a property owner is not eager to work with you, then move on.  There are way to many deals out there to chase any one.

Maryann L. · Answer

Hi Doug,
I agree with Liam.  Lately I can tell the homeowners RIGHT AWAY that will be beneficial to work with.  They are eager, get their whole packet ready immediately, never hold up paperwork when it's requested, they communicate well and I don't have to convince them that what they are doing is the better choice.
That said, I have the "other" homeowners too.  The ones that are miserable with their situation, seem to think it's everyone else's fault, can't see what tomorrow brings, so why should they respond today for paperwork requests or closing documents.

If you get to a homeowner soon enough, their auction won't be posted  in the paper for the world to see (as where I live)

They are not forced after auction from their home.

I prefer homeowners in the first group.

Byron McCormick · Answer

"Why would people facing foreclosure say No to a short sale?"

1) If they are REI knowledgeable, they'll know you're talking pre-foreclosure, not a true short sale.  Maybe that leaves a bad impression, maybe it doesn't.    It may also send a signal that you're lacking in other areas...and might end up with the wrong deal.

2) If they bought the house to live in, and not to invest in, they might not see the 'advantages' you're speaking of; there may be other reasons, such as a medical/family issue.  Chances are, if they are in this category, they also do not know the difference between a shortsale and a pre-foreclosure...

3) No 1099 for the deficiency.   This is where knowing the difference between the two is CRITICAL in my opinion.  Can you imagine arranging a deal for someone in the beginning, telling them this, then, the deal closes, and they get it anyway?  Get your reputation sunk by something like this, and you may have to find elsewhere to do your business.    Remember, as we get better, we'll deal more often with OTHER REI's...and word gets around.

4) Exposure: If you deal with a pro, and they detect you don't know the difference, don't expect them to structure the deal to accommodate your lack of knowledge.    Its not a rip off, its about each of us being responsible and knowing what  our goals are.    Thats not the job of the woman across the table from you.

Those were my two cents.

Justin S. · Answer

Be careful with this.  In non-deficiency states, homeowners may actually be forfeiting their rights of non-deficiency if they do a short sale.  You need to ensure they are covered by lingo in your contract and making sure the approval letters states this as well.

Liam Ferris · Answer

Hi Doug,

From what I understand, and I am by NO MEANS an expert, the challenge isn't necessarily getting the seller to say yes to a short sale, but is making sure they're serious about it as Ali mentioned. Even if they agree to a short sale, it doesn't mean that they will be keen on getting together the seemingly invasive records that will be required as part of the short sale package.

I think a lot of the time they are just as embarrassed by the prospect of a short as they are of a foreclosure. But that's why we're not in the real estate business - we're in the solutions business, and need to understand our clients needs before we can prescribe the right solution.

Hrmm, that was longer than I planned. Doug, what part of CA are you in? I'm in Orange County. I'm just getting started in short sales too - we should chat sometime.

Liam

Doug Haisten · Answer

Thanks eveeryone those are good points. I need to find a site for California similiar to the one Wheelhouse gave me for Arizona, print out the pertinent verbiage so they can see what happens after the short sale. I will have to be careful to emphasize I am not giving tax or legal advise though and stress they need to seek legitimate consul.

As to apathy, your right. Way too many other oppurtunities to go rather than waste time on someone content to go to foreclosure.

Doug

Corry Taie · Answer

Some people have still gotten a 1099 after a foreclosure. 
Also, if they get a 1099, their tax preparer can file a 982 form & write off their loss as well. (At least, this is how I have seen it done) I'm not a tax professional, just stating what I have seen happen.

James Ward · Answer

Great advice Justin.  Everyone could learn alot from what Justin said!

You really need to know and understand the laws and regulations in the areas you conduct business.

M Lindgren · Answer

My experience has been that once the homeowner accepts a short sale bid the PA is then sent to the bank for acceptance.  The banks will accept but then go after the homeowner for the difference between what is owed and what the sale price is.  The homeowner then figures they are better off just going through foreclosure-once the bank takes the house they are able to walk away with no threat of being sued for the difference.  Has happened 3 times to me.

Why would people facing foreclosure say No to a short sale

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